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«Dr. M. Bavorova, Dr. H. Hockmann, Dr. A. Pieniadz Institute of Agricultural Development in Central and Eastern Europe; Theodor-Lieser Str., 06108 ...»

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Conditions and results of the accession negotiations in the milk and beef

sectors in Poland and the Czech Republic

Podmínky a výsledky jednání o vstupu do Evropské Unie. P ípad produkce mléka a

hov zího masa v Polsku a v eské republice.

Dr. M. Bavorova, Dr. H. Hockmann, Dr. A. Pieniadz

Institute of Agricultural Development in Central and Eastern Europe;

Theodor-Lieser Str., 06108 Halle, Germany

Tel: 0049 0345 2928 224

e-mail: bavorova@iamo.de

www.iamo.de

Abstract: The paper reviews experiences from the accession process of Poland and the Czech Republic, two countries with different accession conditions regarding the agri-food sector. The paper has two main aims. First is to discuss the scope of action in the EU and in the acceding countries from a game theoretical view. The second aim is to identify the reasons for successfully providing beneficial accession criteria. This is done by investigating two selected agricultural sectors: milk and beef production. Our overall argument is that the actions, which nations and interest groups have undertaken with regard to EU accession and future policy direction are, at least partially, a function of different external restrictions and internal national patterns; i.e., the relevance and structure of agriculture and the bargaining power of interest groups.

Keywords: accession process, interest groups, Copenhagen agreement Abstrakt: P ísp vek se zabývá procesem p ístupu Polska a eské Republiky, zemí s významnými rozdíly zem d lsko-potraviná ského komplexu. Hlavním cílem lánku je analýza podmínek a omezení jednání jak ze strany EU tak i ze strany p istupujících zemí z pohledu teorie her a posouzení dojednaných podmínek vstupu na p íkladu produkce mléka a hov zího masa. Analýza ukázala, že p ístupová jednání byla determinována jak vn jšími podmínkami zú astn ných stát jako nap. WTO závazky, tak i vnit ními podmínkami jednotlivých stát jako nap. strukturou zem d lství a tlakem oborových svaz.

Klí ová slova: integra ní proces, oborové svazy, Smlouva o p istoupení 1 Introduction In the early 1990s, the central planning systems in Central and Eastern Europe Countries (CEECs) collapsed. Simultaneously, the countries initiated economic reforms in order to liberalize, privatize and restructure their economic systems. These processes were governed by the paradigm that higher economic freedom would foster economic recovery and assist in bringing the countries onto a sustainable growth path. In order to support this development, the governments sought out alliances that would improve the political end economic stability of their countries. Unsurprisingly, future membership in the European Union (EU) became one of the main objectives in the former centrally-planned economies.

As early as in May 2004, eight of the former CMEA1 countries will join the EU. Over the course of the last decade, these countries were obliged to enforce several painful economic and political adjustments in order to comply with the acquis communautaire, whose adoption is a prerequisite for full membership. However, despite some disappointments with the outcomes of the accession negotiations, the results of the popular referenda in 2003 revealed that the population in the CEECs still regards EU-membership as beneficial for their future welfare.

In this paper we neither have the space nor the time to provide an overall assessment of the accession agreements. Instead, we will restrict our attention to the agricultural sector. This sector has been one of the most sensitively-discussed topics during the accession process.

The reasons are that a large part of the financial transfers among EU-members result from subsidies provided to agricultural production. Furthermore, empirical evidence provides that this sector is quite well-equipped to affect agricultural policy in a way that allows huge income transfers to the members of the agri-food chain.

Our analysis is implicitly embedded in a game theoretical framework. The procedure is as follows: In the second section, we will present some general remarks regarding the options open to the EU and the acceding countries. These considerations lead to an exploration of the negotiation results, which will be assessed in the third and fourth section. We will concentrate our analysis on the dairy and beef sectors in Poland and the Czech Republic, because those sectors are expected to be heavily influenced by integration into the EU market. In the last section, the main conclusions are summarized.

2 Scope of action

2.1 The European Union The EU has substantial political and economic interest in enlargement. However, there are at least five restrictions limiting their scope of action. The first restriction concerns the external relations of the EU. In the Agreement on Agriculture, the EU accepted that it must reduce its AMS2 significantly. In addition, it has agreed to comply with the WTO-rule that the enlargement of a free trade area should not only lead to a relaxation of trade barriers among the members, but should also provide more trade liberalization on the global level.

The second restriction concerns budget constraints. The accelerating increase of expenditures in the 1990s led to fears that enlargement will incur extremely high additional costs. Thus, besides the financial means provided by the pre-accession instruments, (PHARE, SAPARD, ISPA) there should be no additional substantial budget requirements.





A third restriction, closely connected to the second one, results from the fact that enlargement decisions must be made unanimously. Thus, individual countries possess the possibility to block enlargement decisions. Since the CEEC have a lower GDP per capita than the EU members, and generally place a higher importance on the agricultural sector, implementing EU structural and agricultural policies in the accession countries would have led to a redirection of financial transfers away from the South European members, towards CMEA - Council of Mutual Economic Assistance.

AMS – Aggregated Measure of Support. This is a measure for the trade-distorting support of agricultural production.

the new ones, without the former countries expecting any significant benefits from increasing international trade, etc. Furthermore, the historical linkages between the countries on the Southern rim of the EU and the CEECs were relatively weak, so Eastern enlargement was mainly in the interest of the countries in Central and Northern Europe. In order to achieve an agreement, the accession conditions could not result in any financial losses of the Southern European Countries. Thus, additional enlargement costs had to be covered by countries that are in the neighborhood of the candidate countries.3 The fourth restriction stresses a political economy argument. It is well-recognized that agricultural interest groups are very successful in influencing policy decisions. From the beginning of the accession negotiations, the representatives of the European agri-food chain raised concerns about the future of the European agricultural model. In fact, they did not directly oppose the enlargement process, however, they insisted that enlargement should not weaken the competitiveness of the agri-food chains in the current member states. First, this position is consistent with the requirement the candidate countries had to comply with the acquis before being accepted as new members. Second, the interest groups demanded some “stock guarantees” which possibly could have even improved their future competitive position on the CEECs’ food markets.

A fifth restriction results from the fact that it would have been a big political mistake to treat the candidates differently. Because of its population, the size of its economy and its central location, Poland had more negotiating leverage than other candidate countries.

Accordingly, it could have been expected that Poland would exploit these assets and would be able to negotiate better accession conditions than other CEECs. However, in order to avoid enviousness among the accession countries, the commitments had to be viable for all candidate countries. These considerations also suggest that differences in financial commitments among the countries will only result as long as their reasons correspond to the causes responsible for net transfers in the existing EU.

The arguments discussed so far have described the scope of action of the EU. However, from a game theoretical perspective, a further point has to be addressed. In a multi-player game, there exists the possibility that the strategy spaces of the actors are correlated. Even if the group of accession countries could not be treated homogeneously, this correlation might have led to coalitions among the candidate countries, which may have, in addition, varied with the chapters to be discussed during the accession negotiations. Multilateral negotiations would have led to more complicated decision processes and, since the coalitions could have exercised power, the negotiation position of the EU would be weaker than in a situation with bilateral negotiations and only multilateral consultations. Thus, the EU preferred bilateral negotiations. Since the initiatives for EU accession stem from the individual CEECs, the EU was also able to implement this strategy.

In fact, the biggest steps towards an overall agreement was made at the Berlin summit, (2000) when Germany accepted the responsibility of providing additional contributions to the EU budget. The agreements reached on the financial aspects respect the ceilings for enlargement-related expenditures set out from 2004-2006 by the European Council in Berlin (2000) as well as the decisions of the Brussels European Council of 24/25 October 2002. See also section 3.

2.2 The candidate countries The negotiation positions of the candidate countries were also affected by external and internal restrictions. The external restrictions resulted from WTO accession in the 1990s.

Similar to the EU, the CEECs had to commit to special requirements regarding internal support, market access, export subsidies and tariffs.

Contrary to the EU, the internal restrictions resulted from the fact that accession decisions depend not only on the vote in the council of ministers, but were subject to referendums held in the individual applicant countries. Thus, EU membership was only accepted when the majority of citizens in the individual countries expected to benefit from negotiation results. This suggests that the candidate countries had to deal with the very complex problem of forming public opinion. On the one hand, one could argue that the CEECs faced a rather simple situation since the population had to vote only by majority in favor of EU membership. On the other hand, however, this argument holds true only in an ideal world without the influence of interest groups, which have gained more bargaining power since when the restructuring and liberalization processes started. Even if their infrastructure and managerial abilities are limited for influencing public opinion, they nevertheless had the advantage that old linkages could be used for consulting and influencing the decision makers’ opinions.

2.2.1 The role of interest groups in Poland Agricultural interests are represented in Poland by two political parties: the Polish People' s Party (PSL) and Self-Defense (SO). The ambition of both parties is to improve the welfare of Polish citizens, especially those in rural areas. Although both parties follow the same priorities, they have relatively conflicting preferences regarding the design of future agricultural policy. The PSL, which can be classified as agrarian-centrist (protectionists and pro state intervention in the economy),4 was pro EU-integration. On the contrary, the conservative agrarian party SO has been strongly against alliance with the EU.

Consequently, depending on the temporary popularity of the parties, a significant shift in public opinion towards disenchantment with EU enlargement and exclusionary nationalism was observable in the pre-accession period.

PSL often lacks credibility and policy convergence within the party. Many voters have blamed the party for having dishonest politicians who place their own interests ahead of the interests of the nation or group to be represented. The decreasing attitude of the Polish citizens towards EU integration during transition has been a kind of “feed” for the SO party, and the escalation of the demagogic statements against the EU made by SO have had again a strong influence on public opinion. As a consequence, PSL has lost voters during transition, whereas SO has gained them.5 The debate of SO has often been based on speculation and conjecture. Thus, awareness of the true consequences of accession has been extremely limited and subjective in the SO electorate. This has increased uncertainty among the whole Polish population. Finally, PSL have been seen as the more PSL builds its concepts by giving priority to social objectives. In its opinion, Poland' agricultural system s shall be founded on family-owned farms, supplying products to the market and providing their owners with income comparable with the income of city habitant. Small farms shall also be permitted to exist, as they are oriented to self-sufficiency, and absorb some of the unemployed.

PSL-elections in 1993: 15.4%; 1997: 7.3%; 2001: 9.0%: SO-elections in 1997: 0.1%; 2001: 10.2%.

representative organization of the agricultural groups in the negotiation process. Despite internal discrepancies, the official position of PSL regarding negotiations with the EU has been relatively uniform. Different position documents of PSL were presented to the Polish negotiations committee during the pre-accession period.6 The party has influenced significantly the negotiation results with regard to direct payments (complements to direct payments funded by national means), support for early retirement, and production quotas as well as measures relating to rural development.



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