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Implications of enlargement for agricultural trade

This article discusses the changes in agricultural trade resulting from the enlargement of the EU, including the removal of tariffs, adoption of EU policies, and trade effects. It also examines the extension of the Common Agricultural Policy to the new member states and its impact on production and trade.

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Implications of enlargement for agricultural trade

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  1. Implications of enlargement for agricultural trade Alan Matthews Trinity College Dublin Ireland Alan Matthews UNECE Executive Forum 11-12 May 2004

  2. Agri-food trade of the EU-10 • Regional self-sufficiency in 1994… • …changed to net deficit of $1.9 billion by 1996 • Fluctuated around $1.5 billion since then • Hungary the only net food exporter among the new member states Alan Matthews UNECE Executive Forum 11-12 May 2004

  3. Agri-food trade balances Alan Matthews UNECE Executive Forum 11-12 May 2004

  4. Changes resulting from enlargement • Removal of remaining tariffs on intra-EU25 agricultural trade • Gradual liberalisation under Europe Agreements • Up to 75% of agrifood trade liberalised by 2000 • 2000 “double zero” agreements • Duty-free quotas for pork, poultry and some other products and elimination of export subsidies • 2002 “double profit” agreements • Duty-free quotas for cereals, beef, dairy products; virtual free trade in fruits and vegetables • Also partial liberalisation under CEFTA and BAFTA Alan Matthews UNECE Executive Forum 11-12 May 2004

  5. Changes resulting from enlargement • Adoption of Common External Policy by accession countries • Overall reduction in bound tariffs due to high tariffs in Poland and Hungary • But slight increase in average agricultural prices because applied rates sometimes below bound rates • Adoption of EU’s preferential trade arrangements, • Association Agreements, Generalised System of Preferences, Everything but Arms, Cotonou Agreement • Ending of pre-existing bilateral trade agreements by the accession states Alan Matthews UNECE Executive Forum 11-12 May 2004

  6. Changes resulting from enlargement • Adoption of EU SPS and TBT rules • Adoption of the Union acquis with respect to food safety, animal and plant health and food standards already completed • Application of the single market, also for third country exporters • temporary derogations for some food processing plants • Some accession country standards higher, some lower Alan Matthews UNECE Executive Forum 11-12 May 2004

  7. Trade effects of EU enlargement • Trade creation: the change due to the replacement of (higher-cost) domestic production by (lower-cost) imports • e.g. if high-cost EU-10 pork production displaces by lower-cost EU-15 supplies on EU-10 markets • Trade diversion: the change due to the replacement of imports from a low cost source by imports from a high cost source • e.g. if low-cost US poultry exports to EU-10 markets are displaced by higher-cost EU-15 production Alan Matthews UNECE Executive Forum 11-12 May 2004

  8. REST OF WORLD Trade effects of EU enlargement EU-15 EU-10 Trade creation Trade diversion Alan Matthews UNECE Executive Forum 11-12 May 2004

  9. Extension of CAP to EU-10 • Fear was that extension of CAP to cover agricultural production in the EU-10 would encourage greatly increased production • Putting pressure on markets in the EU-15 • Leading to additional export surpluses for EU-25 • Putting pressure on the EU budget • Leading inevitably to further CAP reform Alan Matthews UNECE Executive Forum 11-12 May 2004

  10. Extension of CAP to EU-10 • Price gap now much less than earlier due to gradual convergence of EU-10 prices with EU-15 prices pre-accession • But exceptions for individual countries and commodities • Production incentives also affected by direct payments and supply controls • EU-10 using simplified system until 2009 • Reference quantities and quotas much closer to recent production levels than to the higher historic or potential levels Alan Matthews UNECE Executive Forum 11-12 May 2004

  11. Extension of CAP to EU-10 • June 2003 CAP reform decouples most direct payments throughout EU-25 • Will reduce incentive to increase production • Cross-compliance requirements will raise production costs • Modulation of direct payments (i.e. reducing payments to farmers receiving more than €5000 annually) to shift funds to rural development may discourage farm restructuring Alan Matthews UNECE Executive Forum 11-12 May 2004

  12. WTO commitments a constraint? • Tariffs • Possibility of compensation to WTO third country suppliers if average tariff increases for specific commodities • Tariff rate quotas • Bilateral EU-CEEC TRQs extinguished • No change provided EU-25 continues to meet its minimum access commitments • Domestic subsidies • Subsidies to EU-10 farmers exempt as Green Box • Export subsidies • EU-10 bring limited additional export subsidy ‘rights’ • EU-15 use of export subsidies now below Uruguay Round ceilings Alan Matthews UNECE Executive Forum 11-12 May 2004

  13. To summarise….. • Much EU-25 agricultural trade already liberalised • Limited production effects of the extension of the CAP to the new member states • Most price convergence has already happened • Production effect of direct payments limited because they are mostly decoupled and based on recent (low) production levels • Milk and sugar quotas will also limit supply response Alan Matthews UNECE Executive Forum 11-12 May 2004

  14. Importance of external developments • Strengthening of the euro against the dollar • Makes the EU-25 market more attractive to imports, displacing domestic production • Makes EU exports more expensive on world markets, increasing the need for export subsidies • Recent Commission market forecasts to 2010 assume exchange rate 1€ = $1.1 • Some strengthening of world commodity markets helped by expanding world trade Alan Matthews UNECE Executive Forum 11-12 May 2004

  15. Market effects of EU enlargement • Slight boost to agricultural production in the EU-10 will be offset by the production disincentive due to decoupling in the EU-15 • Overall effects on third countries will be minor • Main dynamic factor will be growing demand for agri-food products in the EU-10, driven by higher rates of per capita income growth • New member states will find growing markets for feedgrains and poultry in the EU-15 • EU-15 producers will benefit from growth in markets for fresh dairy products, cheese and pigmeat in the EU-10 Alan Matthews UNECE Executive Forum 11-12 May 2004

  16. Market effects of EU enlargement • EU-funded rural development programmes will help to improve productivity, meet higher standards, restructure production and support rural areas • Rapid changes in the food retailing sector, driven by presence of EU-15 retailers • Continued contribution by foreign direct investment • Gradual shift to trade in higher value, processed foodstuffs Alan Matthews UNECE Executive Forum 11-12 May 2004

  17. Thank you for your attention! Alan Matthews UNECE Executive Forum 11-12 May 2004

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