4.1.8.     The agricultural implications of enlargement

LEGAL BASIS

The relations between the EU and the Central and Eastern European countries (CEEC), Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia are based on association agreements under Article 238 (181) EC ("Europe Agreements" - * 6.3.3).

The European Commission presented to the Council in March 1998 the legislative proposals necessary for strengthening the pre-accession strategy for the ten central and eastern European applicant countries.

For legal bases of CAP-Reform and chapters related to agricultural implications of enlargement, see "CAP-Reform" - * 4.1.2

On 1 July 2000 (1 January 2001 for Lithuania), agreements on agricultural trade liberalisation with 8 CEEC came into effect introducing principally the immediate and full liberalisation of trade for more than 400 agricultural products. An agreement with Poland on farm trade liberalisation was reached after 18 months of negotiations in September 2000 and will enter into force early in 2001.

OBJECTIVES

Under the Europe Agreements, trade in agricultural goods is to be gradually liberalised, based on mutual tariff concessions.

Agricultural pre-accession aid is to help the CEEC applicants transform and modernise their agricultural sector and rural regions in order to enable them to adopt the CAP acquis on the day of accession.

ACHIEVEMENTS

Negotiations on the Agricultural Chapter of the acquis have been formerly launched on 14 June 2000, with the 6 "Luxembourg Countries" (Poland, Hungary, Czech Republic, Slovenia, Estonia and Cyprus).

1.    Agriculture is seen as a particularly sensitive and problematic sector. In 1995, the European Commission prepared an Agricultural Strategy Paper (CSE(95)607) based on several country and sector studies produced in collaboration with scientific advisers. This paper highlighted the main challenges for the CAP of EU-accession of the CEEC-countries and drew up policy options for the future.

a.    The sensitivity of agriculture in the enlargement process stems from the relative size of the agricultural sector in some of the CEEC and from the substantial agricultural production potential that the CEEC would add to the Union. Looking at figures for 1998, the combined gross domestic product of the ten CEEC equalled about 4 % of that of the EU (see table). Their agricultural area, however, is equal to 45% of the agricultural area of the EU. Agricultural output of the CEEC was not quite as large in relation to that of the EU, as productivity was lower, but it nevertheless equalled about 30% of agricultural production in the Union. The accession of the CEEC would, therefore, add far more to the EU's agricultural output than to its national product. As a result, the common agricultural markets and policies would encounter severe strain.

Moreover, the agricultural sector in the CEEC has gone through a fundamental transition and restructuring process over the years that led to a fall in output. It seems reasonable to assume that the CEEC will recover at least part of this lost output before accession as market-based rural economies take hold and Western production technologies are adopted. In addition, a convergence of the relatively low agricultural producer prices in the CEEC to the higher price level in the EU at the time of accession would provide farmers in the CEEC with a strong incentive to produce more. The 1998 figures might, therefore, understate CEEC production at the time of accession. Many CEEC are likely to become net exporters of agricultural products in the future.

b.    Integrating CEEC agriculture into the current CAP would lead to substantial budgetary and trade policy problems. Direct income support payments might have to be extended to the farmers in the new member countries and increasing production surpluses would need to be sold on the world market using export restitutions to bridge the gap between EU and the lower world market prices. Estimates of the additional costs of administering the agricultural markets in an enlarged Union range, depending on the assumptions made and the analytical methods used, from 5 to 50 billion EURO. But even a figure at the lower end of this range would represent a major burden on the EU budget and would indeed break through the current budgetary ceiling on agricultural expenses that links the growth of the agricultural budget to that of the overall budget.

c.    Eastward enlargement will generate problems for the CAP stemming from the obligations the EU and the CEEC have assumed within the GATT/WTO framework. The Uruguay Round of GATT negotiations established ceilings for subsidised agricultural exports and for the total amount of agricultural export subsidies. These limits would become binding constraints for an enlarged EU with its increased agricultural production surpluses. A renegotiation of the trade agreements within the WTO, on the other hand, would be bound to be cumbersome and difficult.

2.    Several policy proposals on how to cope with the looming budgetary pressures and trade frictions had been made by independent researchers.

• One recommendation called for the agricultural sectors of the CEEC to be excluded from the internal market of the enlarged Union. The CEEC would continue to operate their agricultural policies at the national level instead of integrating into the CAP.
• Another scenario envisioned long transition periods during which agricultural price differentials would be maintained between the existing EU and the acceding countries. The lower prices in the CEEC, enforced at the borders through import duties and export subsidies, would reduce the incentive for farmers in the CEEC to increase their production and to swamp markets in the West with their cheaper products.
• A third line of argument recommended the full and immediate integration of CEEC agriculture into the CAP along with the introduction of more extensive forms of supply management. Production quotas and compulsory land set-aside schemes would be used to prevent the creation of further production surpluses.
• More market-oriented policy observers called for a continuation of the MacSharry reforms of the CAP. Agricultural support prices should be lowered towards world market prices in order to reduce incentives for surplus production, avoid budget expenditures for export restitutions and comply with international trade agreements. The ensuing loss in farming income could be compensated through direct payments to farmers.
• In fact, in its document "Agenda 2000" issued in July 1997 the Commission proposed deepening and extending the 1992 reform through further shifts from price support to direct payments - to be set at an appropriate level while avoiding overcompensation - and developing a coherent rural policy to accompany this process.(* 4.1.2) Volume II of Agenda 2000 refers specifically to reinforcing the pre-accession strategy and describes the objectives, methods, financial resources and legal instruments. Simultaneously the Commission presented ten opinions on the CEEC's application for Membership of the European Union (COM(97)2001-2010) (* 6.3.3).
• On various occasions during the year 2000, Commissioner Fischler has expressed the opinion that a simple transplant of the direct payments system to the CEEC would ignore their special circumstances of rapid structural change and might create social tension. The available resources would be used more effectively for rural development and restructuring. Transitional arrangements would be necessary in the domain of agriculture, but after a transition period all - old and new - EU member states would be equally entitled to all CAP payments.

3.    Agriculture is the dominant form of land use covering on average more than 55% of total land area in the CEECs. In several CEECs there was a net migratory flow to the countryside as general economic conditions worsened during transition and agriculture played the role of buffer. The underemployment and hidden unemployment related to subsistence farming poses future challenges for a balanced development of rural economies.

The new Special Action for Pre-accession measures for Agriculture and Rural Development (SAPARD) (Council Regulation (EC) 1268/1999) to prepare enlargement and solve priority problems in agriculture and rural development in the CEEC can be considered an equivalent to the new 2nd pillar of the CAP, the rural development policy. Its annual budget is 520 million Euro (2000-2006). A first tranche of 309 million Euro was approved by the Agricultural and Rural Development Structures Committee (STAR) on 14 September 2000, and now needs confirmation from the Commission.

A general set of guidelines is introduced by the regulation on coordinating aid to the applicant countries in the framework of the pre-accession strategy and an Instrument for Structural Policies for pre-accession (ISPA) which is similar to the Cohesion Fund allocates Euro 1 billion p.a. as aid for infrastructure.

The Commission has furthermore reoriented the PHARE Programme towards two priority objectives -strengthening administrative and judicial capacity and investments connected with the adoption and implementation of the acquis.

4.    Adequate preparation for EU membership in the CEEC's is particularly important in the area of food safety and hygiene laws.

During much of 1999, screening negotiations laid open the discrepancies between the EU acquis communautaire and CEEC legislation.

ROLE OF THE EUROPEAN PARLIAMENT

Agricultural issues and the future of the CAP have received considerable attention from Parliamentary Association Committees that include members of the EP and of the Parliaments of the associated countries.

Moreover, the agricultural implications of the prospective Eastward enlargement have been discussed at several meetings of the EP's Committee on Agriculture and Rural Development.

-    In an opinion on the European Commission's White Paper on enlargement, the Committee criticised the fact that the Commission explicitly addressed only some aspects of agricultural policy in the White Paper, such as veterinary issues, plant health and animal nutrition. The Committee recommended that discussion on the agricultural implications of enlargement focus on the entire sector in order to recognise the interdependencies and complementarities involved. It also took the view that the rapid adjustment of national provisions in the associated countries to the principles governing EU agriculture would offer an effective means of strengthening the trade relations between the EU and the CEEC.

-    In December 1996 the EP adopted a report by the Committee on Agriculture and Rural Development (C4-0023/96), calling for an assessment of the 1992 CAP-reform, for the CAP to take into account future developments of the world market, environmental aspects, WTO-negotiations and the new EU-budget framework and the broad outlines of a CAP-adjustment to be established before the end of specific negotiations with the applicant countries. Enlargement should not call into question the current level of support towards agriculture; the current principles (subsidiarity, financial solidarity, Community preference and the unity of the market) must be retained. More EU-aid is to be given to applicants during the pre-accession phase for restructuring their agricultural and rural sectors.

-    On 4 December 1997, the EP adopted a Resolution on the communication from the Commission "Agenda 2000 - for a stronger and wider Union". Various Committees submitted their opinions on this subject, partly also dealing with agricultural aspects, warning principally against negative social implications of a too rapid restructuring of CEEC agriculture, criticising overoptimistic working hypotheses, calling for CAP-reform and increase in the GNP percentage limit for structural policy measures. In its resolution the EP regrets that the Commission in Agenda 2000 has not developed an overall basis for the orientation of all sectors of agricultural production and no specific policy framework for the rural community, doubts the effectiveness of using agricultural structural funds (split between various objectives and support frameworks); believes that given the discrepancies of the farm sector in the CEEC, the considerable difference in prices and the appropriateness of encouraging rural development the CAP in its current form should not be extended to the new members.

After expressing its support for aid to the applicant countries in Central and Eastern Europe but at the same time calling for prior consultation of the EP on the modalities in its resolution of 18 December 1997 on the conclusions of the Luxembourg EU-Council and its legislative resolution of 11 March 1998, Parliament held a new debate on Agenda 2000 in November 1998 leading to the adoption on 19 November of several resolutions on the pre-accession strategy and instruments, i.e. the pre-accession support for agriculture and rural development, based on the report by Mr. J. Sonneveld (* 4.1.2).

Following intensive informal negotiations between the EP, the Council Presidency and the CE on various pre-accession issues, the CAP, the Structural Funds and the future financial framework of the Union, the EP unanimously approved the Agenda 2000 package on 6 May 1999 (* 4.1.2).

In its latest resolution on the enlargement of the EU on 4 October 2000, the European Parliament insists on full powers of codecision on agricultural policy and the agricultural budget before any new member state is admitted to the EU.

The EP reaffirms its desire to see further countries admitted to the EU, calls, however, for further efforts to be made both by the current EU and by candidate countries (CC) in the agricultural and fisheries sectors. Additional resources should be allocated to the 2001 budget for CCs to develop effective agricultural statistics systems. Assistance to farmers in CCs should be restricted to measures aimed at structural reform of the agricultural sector; following accession farmers should be entitled to direct income support payments to compensate for actual loss of income through price falls where immediate structural change is not possible.

The Commission is asked to provide the EP with an estimate of the possible cost per country and per sector involved in view of a possible extension of the current CAP income support system.

The CAP's second pillar, rural development, should be further strengthened; the Commission should offer CCs access to rural development funds. Enlargement must not call into question the current level of aid to EU-15 farmers.

Veterinary and phytosanitary legislation as well as animal welfare regulations are to be adopted in full by the CC. If transitional arrangements are needed they must be kept to a minimum in scope and time; CC representatives should be able to participate in meetings of the EU phytosanitary and veterinary committees. The greatest possible account is to be taken of food safety and food policy.

The EP urges for recognition of the importance of environmental protection, nature conservation in general and the extensive biodiversity of the CC. The rich natural and cultural heritage of rural areas is seen as a potential foundation of social and economic strategies based upon sustainable development. Clear links should therefore be established between national rural development plans and funds on the SAPARD and NATURA 2000 sites should be the target of pilot agri-environmental projects. A reproduction of EU-15 problems associated with intensive farming, monoculture, displacement of agricultural labour should be avoided. Survival of rural communities and traditional and ecologically friendly methods should be encouraged using existing budgetary measures such as the EAGGF and LEADER.

* 1995
** 1996
† 1997

Sources:
Statistical Yearbook on CECs 1998.
Regular Report from the Commission on Progress towards Accession by each of the candidate countries 1999.
European Commission.
The agricultural situation in the European Union (1998).

16/10/2000