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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