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

2. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

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

4. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

5. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

6. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

7. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

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

9. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

10. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

11. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

12. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

13. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

14. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

15. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

16. Alan Matthews UNECE Executive Forum 11-12 May 2004 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

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