Lotze, Hermann: Integration and Transition on European Agricultural and Food Markets: Policy Reform, European Union Enlargement, and Foreign Direct Investment - Four Essays in Applied Partial and General Equilibrium Modeling -

122

Chapter 4. Implications of a European Union Eastern Enlargement under a New Common Agricultural Policy

4.1. Introduction

The integration of several Central European countries (CEC) will probably be one of the biggest challenges for the European Union (EU) in the near future. In contrast to earlier enlargement rounds there are not only considerable differences between the EU-15 and potential new members in terms of economic development, but also with respect to the political environment in the transition process. While ten CEC have formally applied for membership, the EU recently announced five of them as being the first candidates for integration, i.e. Estonia, Czech Republic, Hungary, Poland, and Slovenia.

For several reasons the agriculture and food sector could become a major stumbling block on the way towards an enlarged EU. The potential new members have a higher share of agriculture in the gross domestic product (GDP), a much higher proportion of agricultural labor force, and household expenditures on food which are considerably above EU levels (OECD 1996; World Bank 1996). Hence, protection measures and transfers under the Common Agricultural Policy (CAP) will have an important impact on the new members during the process of enlargement.

There is almost no doubt that the CAP will have to change prior to the integration of any CEC. The pressure for change is already indicated by the EU Commission in the Agenda 2000 (European Commission 1997a). As a consequence of the Uruguay Round under the General Agreement on Tariffs and Trade (GATT), the EU faces constraints on the level of agricultural border protection. Depending on the level of world market prices in the near future, upper limits for subsidized exports and the total amount of export subsidies could become binding and force the EU to cut down overall production in grains, sugar, beef, and dairy products (European Commission 1997a, p.29). So-called "blue box" measures under the regulations of the World Trade Organization (WTO), e.g. product-related compensation payments that were introduced in the 1992 CAP reform, will also be challenged in the upcoming WTO round (USDA 1997a).

With regard to new members it is debated whether or not they should be eligible for all benefits under the CAP. Since most of the direct payments currently in operation in


123

agriculture were introduced as a compensation for earlier price cuts within the EU-15, it could be argued that there is no need for compensation in the CEC. More importantly, income distribution between agriculture and other sectors would be heavily distorted if farmers in the CEC received the same nominal subsidy payments as currently available in the EU-15. On the other hand, so far all agricultural policy measures are applied uniformly throughout the EU and it might be difficult to establish a "two-class" system where farmers in some countries are subsidized more than in others. The EU Commission itself indicates that there will be a single agricultural policy regime for old as well as new members, although possibly only after a longer transition period (Agra Europe 17/97, p.E7). However, the transfer of current protection levels to the CEC might not be possible for other reasons. From the GATT Uruguay Round the CEC face limits regarding border protection which are much lower than current EU levels. If they would join the EU without major changes to the CAP, their WTO obligations would certainly be violated (Twesten 1998).

Finally, the discussion about financing the CAP in general is another crucial issue. It can be assumed that the CEC will be net recipients with respect to the EU budget, at least in the first years of membership. Hence, the financial impact of a potential enlargement will become a crucial issue during the upcoming negotiations. Already now the EU agricultural guideline sets a limit to the agricultural budget such that expenditures must not increase by more than 74 percent of the growth rate of GDP (Tangermann 1997, p.14). It is unlikely that the EU will raise this rate in the near future.

There is a broad discussion and a variety of proposals for further developing the CAP. In the Agenda 2000, the EU Commission recently proposed intervention price cuts for grains, milk, and beef, combined with per-animal compensation payments, an extension of the milk quota until 2006, and set-aside rates fixed at zero percent. Uniform per-hectare payments for grains, oilseeds and voluntary set-aside will be provided. Going far beyond this, several agricultural economists have suggested further decoupling of agricultural income support from production including the introduction of direct factor subsidies (Wissenschaftlicher Beirat 1997; Kirschke et al. 1997, 1998). The debate over changes in EU agricultural policy makes the CAP a "moving target" for the new members and difficult to adjust their own policies towards the CAP in preparation for joining the EU.


124

Several studies have been conducted analyzing a potential EU Eastern enlargement in a partial equilibrium framework (e.g. Tangermann et al. 1994; Anderson and Tyers 1995; European Commission 1995; Mahé et al. 1995). While partial equilibrium models are usually quite detailed in the commodity disaggregation they do not account for linkages to other sectors of the economy through factor markets and intermediate input use.<43> In the case of the CEC where agriculture has a significant share in GDP and trade this becomes even more important. In this paper, the EU enlargement is analyzed using a multi-regional AGE model which was developed by the Global Trade Analysis Project (GTAP). The GTAP model and the database have been used for this purpose in other studies (Frandsen et al. 1996; Francois 1997; Brockmeier et al. 1997; Hertel et al. 1997; Swaminathan 1997). This paper adds to these studies a different set of policy options under the CAP and an explicit modeling of the development path up the point of enlargement. Different scenarios for the integration of Central European countries into the EU are analyzed with a uniform payment on agricultural land as the major policy instrument under a modified CAP. In addition to various policy options, two possible growth scenarios up to the date of enlargement are taken into consideration.

In the next section, the policy scenarios are described in detail followed by the model description and empirical implementation. Selected simulation results are provided in Section 4.4 covering growth in output and trade as well as changes in domestic prices and factor use after EU enlargement. Trade creation and trade diversion effects of the enlargement are discussed and some budgetary consequences are provided. The paper concludes with a summary and outlook regarding further modeling options.

4.2. Policy Scenarios for a European Union Enlargement

In modeling a potential Eastern enlargement of the EU with a focus on agriculture and food the following questions have to be answered:

  1. Which of the Central European countries will be the first new members of the EU?
  2. Will there be any changes to the CAP prior to enlargement, and will all policy measures be fully extended to the new members?

    125

  3. When will the enlargement actually occur, and how will the model regions develop up to this point?

Although the EU recently announced the first five candidates for enlargement negotiations, in this paper a simultaneous integration of a group of seven countries from Central Europe is analyzed, i.e. Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia, which will be called CEC-7. The reason for choosing this group is mainly technical due to the regional disaggregation of the model database.

With regard to the second question it can be assumed that the EU will, due to WTO obligations and budgetary restrictions, further liberalize its agricultural policies in the future. This might even become a precondition for enlargement, since tariff bindings for the CEC under the WTO are generally much below those of the EU-15, and any new member country will have free access to agricultural markets and policies within the EU (Tangermann 1997, p.14). From the variety of proposals for further CAP reform<44> in this paper a uniform subsidy on agricultural land is chosen as the main policy instrument under a modified CAP. This was also considered as an important option in recent studies in the context of German agriculture (Wissenschaftlicher Beirat 1997; Kirschke et al. 1997, 1998). Land subsidies may not only be seen as a means of income compensation due to price liberalization, they also could be easily linked to achievement of certain environmental standards. In modeling the EU enlargement a complete and immediate transfer of all agricultural policy measures into the CEC-7 is assumed.<45>

Policy options covered in this paper comprise partial as well as complete liberalization of the CAP. Partial liberalization includes the abolishment of animal payments and compensation payments for crops as well as the compulsory set-aside program. Border protection for sugar, milk and beef is reduced by 10 percent. Production quotas and other market regulations remain in place. With respect to changes in border protection this scenario is similar to the Agenda 2000 as mentioned above. However, a uniform land subsidy is substituted for the variety of direct payments for crops and livestock in the Agenda. It can be assumed, as a side-effect, that this will also lead to lower


126

administrative costs. The scenario of complete liberalization implies the abolishment of all border protection measures in agriculture and food, no quota restrictions for milk and sugar as well as the removal of all product-related compensation payments. In addition, the same uniform land subsidy is introduced.

With respect to the third question, the actual date of enlargement, the integration of the CEC-7 is assumed to occur at once in the year 2005. In order to come up with realistic reference scenarios for the actual enlargement, the model database was updated prior to integration of the CEC-7 into the EU. However, the general economic development until the year 2005 is difficult to forecast, especially in the Central European transition countries. Slovenia and Poland lately achieved annual GDP growth rates between 4 and 7 percent (Ryan and Jones 1997), but it is questionable whether they can sustain this development in the near future. Another question is whether countries like Bulgaria and Romania will be able to catch up in the process of economic and political transition.

Taking these uncertainties into account four counterfactual reference situations have been constructed for the actual enlargement in 2005. They differ with respect to economic growth in the CEC-7 and further reform of the CAP in the EU-15. For the CEC-7, the options are either a moderate growth rate of GDP close to projections for the EU-15, or a faster growth rate more in line with experiences from the "tiger economies" in South East Asia. Expected growth rates for other regions in the model are the same throughout the scenarios. Table 4.1 provides an overview of the enlargement scenarios covered in this paper.

Table 4.1: Possible scenarios for an EU integration of the CEC-7 in 2005

EU Agricultural Policy rarrdarr Growth in CEC-7 Partial liberalization

Complete liberalization

slow plib_s lib_s
fast plib_f lib_f


127

4.3. Implementation of the Scenarios

Model Structure and Aggregation

A multi-region AGE model seems appropriate for the analysis in this paper. It does not only cover various agricultural and food sectors, but traces the links to other sectors of the economy including effects on international trade. The GTAP model provides a flexible structure for an AGE analysis of problems in international trade. From the database a maximum of 32 regions and 37 commodities can be aggregated according to the problem at hand.<46> The model aggregation used here covers 10 regions with 10 sectors ( Table 4.2 ) . Each sector only produces one output.

On the production side of all sectors the model has a so-called nested structure. Land, labor and capital as the primary factors of production are combined to a primary aggregate input using a constant elasticity of substitution (CES) function. The same applies to domestic and imported intermediate inputs which are combined to an intermediate aggregate input. The two aggregates then contribute to final output via a Leontief function. In the standard model, capital and labor are perfectly mobile between sectors, but the total endowment with these factors within a region is fixed.

Table 4.2: Model regions and sectors

Model regions

Model sectors

EU-12 Agriculture:

Wheat

(wht)

Austria/Finland/Sweden

 

Other grains

(gro)

CEC-7

 

Non-grain crops

(ngc)

Australia/New Zealand

 

Livestock products

(olp)

Canada Food Industry:

Meat products

(met)

USA

 

Milk products

(mil)

Japan

 

Other food products

(ofp)

Former Soviet Union (FSU) Other Sectors:

Manufactures

(mnfcs)

Asia

 

Services

(svces)

Rest of the Worlda

 

Primary productsb

(opp)

a Mainly Latin America and Africa.
b Mainly Forestry, Fishery, Mining and Energy.


128

Land is only used in primary agriculture and in the other primary products (opp) sector, while mobility of land between these sectors is limited by an elasticity of transformation. Private demand is modeled by a constant-difference-in-elasticities (CDE) function which is more flexible than the CES function and allows for differences in price and income responsiveness of demand in different regions depending on the level of development and consumption patterns (Hertel and Tsigas 1997, p.26).

Main assumptions of the standard model are perfect competition on all markets as well as profit and utility maximizing behavior of producers and consumers, respectively. In modeling international trade flows, the so-called Armington assumption is applied (Armington 1969). It is assumed that there is product differentiation by regions. This implies that for a certain product trade flows between two regions can always go in either direction at the same time and there is no net trade flow. The Armington assumption fits nicely with regularly observed discrepancies between world market prices for the same commodity at different locations. The change in world market prices in GTAP is calculated as a weighted average price index using bilateral trade flows as weights. However, the Armington assumption has also been criticized by many authors as it is not very flexible and does not endogenize aspects of imperfect competition and industrial organization into international trade. But it still seems to be a reasonable compromise as detailed information on the competitive situation for various sectors is currently not available on a global basis (Hertel and Tsigas 1997, p.21-22). The macroeconomic closure of the model is accomplished by a "global bank" which assures an equilibrium of savings and investments between the model regions. In the standard closure used here, the regional share in global investment is fixed. This closure rule is basically neoclassical, but it allows for some adjustment in the mix of investment on a regional level (Hertel and Tsigas 1997, p.28-30). The model is solved using the GEMPACK software package (Harrison and Pearson 1996).erHEr

The GTAP project has developed a comprehensive database using information from numerous international sources (McDougall 1997). The base year for the data is 1992. However, for further development of the CAP the reference scenario should be the situation in 1996/97 when the changes of the 1992 reform were supposed to be fully implemented. In order to update the database for the simulations in this paper, the 1992 policy changes were implemented in the EU-12, i.e. price decreases for grains, oilseeds, protein seeds, and meat products, in connection with compulsory set-aside and direct


129

compensation payments. Furthermore, by integrating Austria, Finland and Sweden the current EU-15 was created prior to the simulations of further enlargement to the East.

Modeling the Development Period until the Year 2005

In order to update the database and create a realistic base scenario for the enlargement year 2005 the general economic development of the model regions have to be forecast. For this it would be necessary to have exogenous estimates on population growth and commodity specific changes in total factor productivity (TFP) for all regions. Since information on TFP changes by commodity is not available the rates of technical change have to be derived endogenously in the model by applying a methodology first presented by Gehlhar et al. (1994).<47> Exogenous forecasts for several macroeconomic indicators, i.e. growth of GDP, growth of population and labor force, and capital accumulation are used as target values, and then the model is solved by making the technical change parameters endogenous. Thus, TFP changes for every model region can be derived according to the exogenous assumptions about overall economic development until 2005. Moreover, overall economic growth is disaggregated into the equivalent sector-specific changes within the model regions.<48>

Table 4.3 provides macroeconomic forecasts used for calculating the TFP changes in the development period until 2005. For the region CEC-7 two different options are assumed with respect to economic growth, a slow scenario with annual GDP growth at about 3 percent and a fast scenario with 6 to 7 percent.<49>


130

Table 4.3: Macroeconomic forecasts between 1992 and 2005 (in percent)

 

CEC-7
slow

CEC-7
fast

EU-15

FSU

AUS/
NZ

CAN

USA

JAP

ASIA

ROW

Annual Growth of GDP

1992-1995

- 1.6

- 1.6

2.1

- 11.6

2.6

1.3

1.8

1.9

7.3

2.4

1995-2000

3.5a

7.0a

2.2

- 0.6

2.8

2.7

2.5

2.1

7.0

3.6

2000-2005

3.0a

6.0a

2.3

3.2

2.3

2.9

2.5

2.1

6.6

4.0

Annual population growthb

1992-1995

- 0.3

- 0.3

0.4

0.3

1.2

1.3

1.0

0.3

1.6

2.4

1995-2000

0.0

0.0

0.3

0.2

0.9

1.0

0.9

0.2

1.4

2.2

2000-2005

0.2

0.2

0.3

0.4

0.8

0.9

0.8

0.2

1.2

2.0

Annual capital accumulation

1992-2005

3.0a

3.0a

3.0

2.0

3.2a

3.4

3.4

4.8

7.2

2.9

a Own assumptions.
b Equal to growth rate of labor force.

Sources: Gehlhar et al. (1994); USDA (1997b).

Reform of the CAP and Implementation of the Uruguay Round

The policy options covering partial and complete liberalization of the CAP in connection with a uniform land subsidy in agriculture are implemented in the model as follows ( Table 4.4 ). Under the partial liberalization scenarios, all direct payments for grains, non-grain crops and livestock that were introduced in the 1992 CAP reform are abolished. Border protection for non-grain crops, meat and milk products is reduced by 10 percent.<50> For wheat and other grains in the model, it is assumed for simplicity that, after completion of the 1992 reform, in 1996 there is no more border protection, although actually export subsidies and sometimes even export taxes were temporarily enforced.

As a substitute for current output subsidies a uniform payment on agricultural land is introduced which is not related to any specific product. Since the GTAP model works in percentage changes, any policy measure has to be translated into relative terms. The level of the land subsidy is determined by taking the amount of all current compensation payments and direct subsidies in the EU-15, i.e. 18.7 billion ECU in 1996, reducing it by 10 percent and dividing it by the total value of agricultural land as shown in the GTAP database for the EU-15.<51> Thus, a subsidy level is determined at about 75 percent


131

of the factor price for land, which is equivalent to a payment of about 130 ECU per hectare of agricultural land. Technically, the ratio between the market price for land and the perceived factor price for producers is reduced such that factor costs per unit, net of the subsidy, are 25 percent of the actual market price.

Table 4.4: Model implementation of the scenarios

 

plib_s

plib_f

lib_s

lib_f
Direct subsidiesawht, gro, ngc, olp

Abolishment of all
product-related subsidies

Abolishment of all
product-related
subsidies and taxes
met, mil, ofp

 

Border protectionbngc, met, mil

- 10 %

- 10 %

Abolishment of
border protection
wht, gro, olp, ofp

 

 

Land subsidyc wht, gro, ngc, olp

75 %

75 %

75 %

75 %
Growth in CEC-7

slow

fast

slow

fast

a Compensation payments, set-aside payments and animal payments from the 1992 CAP reform.
b Measured as the ratio domestic price/world market price; a reduction of border protection by 10 percent is equivalent to a reduction of the ratio by 10 percent.
c Direct factor payments, in percent of the relevant factor price.

Source: Kirschke et al. (1997); own calculations.

When the land subsidy is transferred to the CEC-7 the question arises whether the same absolute amount per hectare should be paid or some adjustment to local price ratios should be made. An additional problem in the process of modeling a land subsidy is caused by the fact that information on land prices or land rents is hardly available in Central and Eastern Europe, since land markets are still not fully developed. In this paper, a land subsidy is introduced in CEC-7 which is equal to the EU-15 in relative terms, i.e. 75 percent of the local land rent, based on the value of land endowment in the GTAP database.<52> This seems to be a reasonable compromise in terms of a harmonized policy regime, since it would provide a uniform policy measure throughout the enlarged EU with some specific adjustment to regional conditions.

With respect to policy changes in non-agricultural sectors of the EU-15 and all sectors in the other model regions, it is assumed that the obligations from the GATT Uruguay Round are completely fulfilled until 2005. This part of the analysis was possible


132

because version 3 of the GTAP database contains global protection data at pre- and post-Uruguay-Round rates (Ingco 1997). The command files for implementing the growth scenarios in the GEMPACK modeling software are provided in Appendix A-4.1.1.

Modeling the Integration of the Central European Countries

EU integration of the CEC-7 is simulated in the model as a customs union. First, all barriers to trade within the CEC-7 region and between CEC-7 and EU-15 are removed. Second, with respect to trade with third countries border protection levels of EU-15 are applied to CEC-7. And finally, internal regulations under the CAP are transferred to the CEC-7. The milk quota which is still in operation under partial liberalization is applied in the new member countries by fixing output quantities at the actual level in 2005 prior to integration. New payments on land are applied at the same relative level as in the EU-15. The command files for implementing the integration scenarios in the modeling software are given in Appendix A-4.1.2.

Table 4.5 gives an impression of the levels of agricultural support in the EU-15 and the CEC-7 prior to enlargement.

Table 4.5: Protection levels in EU-15 and CEC-7 in 1996 and 2005 (after partial liberalization of the CAP in EU-15; in percent)a,b

 

Output subsidies Export subsidies

Import tariff equivalents

 

EU-15

EU-15

CEC

EU-15

EU-15

CEC

EU-15

EU-15

CEC

 

1996

2005

2005c

1996

2005

2005c

1996

2005

2005c

wht

24.6

0.0

0.7

0.0

0.0

0.0

0.0

0.0

- 7.5

gro

16.9

0.0

0.5

0.0

0.0

0.0

0.0

0.0

11.8

ngc

71.0

0.0

0.4

30.4

17.4

0.0

50.0

35.0

11.2

olp

9.2

0.0

0.6

0.0

0.0

0.0

1.5

1.5

4.4

met

- 4.1

- 4.1

6.8

71.2

54.0

0.0

50.5

35.5

35.4

mil

- 0.2

- 0.2

0.2

91.3

72.2

0.0

126.6

105.7

- 2.1

ofp

- 10.8

- 10.8

1.2

0.6

0.6

0.0

12.7

12.7

18.9

mnfcs

- 0.8

- 0.8

- 0.2

- 0.1

- 0.1

- 1.4

8.5

4.2

8.1

svces

- 2.1

- 2.1

- 0.2

0.0

- 0.1

0.0

0.0

0.0

0.0

opp

- 12.8

- 12.8

- 3.5

0.4

0.2

0.0

0.6

0.6

1.5

a Complete liberalization is omitted since all values are zero.
b Protection levels are given by the ratio [(domestic price - world price)/world price].
c Values for CEC-7 in 1996 are omitted since they only marginally differ from 2005.

Source: GTAP database, version 3; own calculations.


133

It shows protection levels in percent for the status quo in 1996 and the scenarios in 2005 after partial liberalization in the EU-15. Values for CEC-7 in 1996 are not given since they are assumed to remain basically the same until 2005. There are only marginal effects due to Uruguay Round obligations. Also, the values for EU-15 in 2005 after complete liberalization are omitted since in the agricultural and food sectors they are all equal to zero.

The potential effects of a partial liberalization in the EU-15 after 1996, i.e. abolishment of output subsidies in agriculture and reduction of border measures, as well as the need for adjustment for CEC-7 during the integration process become clear. This is especially relevant for export subsidies which are mostly zero in the transition countries prior to integration. As far as import tariffs are concerned there is serious upward pressure in non-grain crops and milk, whereas tariffs on meat are similar to EU-15. In feed grains, livestock, and other food products protection levels in CEC-7 are slightly higher than in EU-15.

4.4. Simulation Results

First, simulation results for the development period until 2005 will be briefly discussed, and then the EU enlargement effects will be looked at in more detail.

Development Period until the Year 2005

For the EU-15 an overall GDP growth rate of about 31 percent has been forecast for the development period until 2005. Differences in output growth in the various sectors are mostly due to changes in agricultural policies ( Table 4.6 ). Different growth rates in
CEC-7 have only marginal effects for the EU-15.

With the exception of non-grain crops all sectors are growing due to overall expansion of the economy. Non-grain crops which include sugar and oilseeds suffer most from the abolishment of high output subsidies and border protection. Other food products (ofp) gain more from complete liberalization, since there is a certain level of taxation effective in the initial GTAP database which is also taken away in this scenario.


134

Table 4.6: Forecasts for output growth between 1995 and 2005 (in percent)

EU-15 wht gro ngc

olp

met mil

ofp

mnfcs svces

opp

plib_s 17.5 17.4 - 19.5

17.1

17.2 14.5

20.8

31.6 37.3

34.2

plib_f 17.4 16.7 - 19.9

16.6

16.8 14.3

20.7

31.5 37.3

34.1

lib_s 18.6 18.6 - 34.2

16.1

15.0 2.3

31.5

32.3 37.2

35.1

lib_f 18.5 17.8 - 34.6

15.6

14.6 1.9

31.5

32.2 37.3

35.0

CEC-7

 

 

 

 

 

 

 

 

 

 

plib_s 26.8 26.4 38.9

29.9

28.0 30.4

27.2

40.4 44.5

34.4

plib_f 88.1 88.4 110.1

87.3

79.3 81.8

89.0

141.1 124.1

137.8

lib_s 29.0 26.7 44.0

35.8

37.7 62.9

23.4

38.7 44.3

32.9

lib_f 91.8 89.4 118.8

96.4

94.1 130.8

83.9

138.4 123.8

135.3

Source: Own calculations.

With respect to milk products is has to be explained why output is rising by about 14 percent under the partial liberalization scenarios, despite the fact that the quota system is assumed to be still in operation. This is a rather synthetic result due to the assumptions made in forecasting the development until 2005. GDP and population are growing at certain rates ( Table 4.3 ) which causes a growth in private and intermediate demand. Instead of fixing domestic output rather the production quota is allowed to adjust in line with domestic demand.<53> The resulting growth in output is sensitive to the assumed growth rates of population and total factor productivity. The model result of 14 percent is certainly too high compared to EU forecasts which predict stagnating milk consumption for the period 1995-2005 (EU Commission 1997b). But the predictions here are based on different assumptions, e.g. changes in consumer preferences over time have not been accounted for.

Manufacturing and service sectors are growing on average faster than agriculture and food industries. The limited endowment of land is not a constraint here. Moreover, these sectors are relatively capital-intensive and the fact that capital accumulation is assumed to be faster than the growth in labor force also accelerates output growth in these sectors.

The dominant effect on output in CEC-7 is the overall expansion in this region which is assumed to be 37 percent in the slow scenarios and 93 percent in the fast scenarios. In addition to domestic growth effects agricultural liberalization in the EU-15 especially affects non-grain crops, livestock, meat and milk products in the CEC-7. In these


135

sectors, output growth is significantly higher in the scenarios with complete liberalization of the CAP. Similar to the EU-15 output growth is strongest in manufacturing, primary products and services. Some of the output changes in the fast scenarios seem to be very high. As mentioned earlier they correspond to the assumption of an annual GDP growth between 6 and 7 percent which is certainly an upper bound.<54>

Changes in world market prices up to the date of enlargement are mainly caused by further CAP reform.<55> Table 4.7 shows the price effects simulated for the development period until the year 2005. Different growth rates in CEC-7 do hardly affect these results since they are a small region in the global economy.

Table 4.7: Changes in world market prices between 1995 and 2005 under various policy scenarios (in percent)

 

wht gro ngc

olp

met mil

ofp

mnfcs svces

opp

plib_s 6.6 2.4 16.3

6.2

5.6 11.3

- 2.1

- 3.6 - 1.8

- 7.6

plib_f 6.1 2.0 15.8

5.8

5.2 11.0

- 2.3

- 3.6 - 1.8

- 7.7

lib_s 6.8 2.9 18.4

5.4

18.0 29.0

- 6.0

- 3.5 - 1.8

- 7.5

lib_f 6.3 2.5 17.9

4.9

17.6 28.5

- 6.1

- 3.6 - 1.8

- 7.6

Source: Own calculations.

Growth of GDP and population in other regions and implementation of the Uruguay Round also contribute to the price increase in agricultural and food products. In the non-agricultural sectors world market prices fall. These sectors benefit from reduced agricultural protection in the EU-15.

Figure 4.1 shows changes in the trade balance for the EU-15 until 2005 in the slow scenarios. Since the Armington specification in the model causes changes in exports as well as imports in each sector, the trade balance summarizes net effects on international trade. The trade balance for non-grain crops deteriorates heavily, between 35 and 58 billion 1992 ECU. Although not presented here, the quantity changes for most agricultural exports indicate that even under a partial liberalization the EU-15 might be able to fulfill its Uruguay Round obligations with respect to export quantities. This is with the exception of meat products for which export quantities are only reduced by


136

about 11 percent, while WTO commitments are about 30 percent (IATRC 1994). A further reduction in the level of border protection for meat products would be required. In the Agenda 2000, a 30 percent reduction in intervention prices has been proposed by the EU Commission.

Figure 4.1: Changes in trade balance in EU-15 until 2005 prior to enlargement (in Mill. 1992 ECU)

Note: The fast-growth scenarios are omitted since the results only differ marginally.

Source: Own calculations.

Among the non-agricultural sectors of the EU-15, manufacturing and primary products lose world market shares which is due to strong expansion in Asia, including China, where an overall expansion of about 136 percent is projected. Only in the services sector the EU is able to improve the trade balance considerably. The total trade balance deteriorates which is in accordance with the assumed capital accumulation and the macroeconomic closure of the model.

European Union Enlargement in the Year 2005

Production effects in the EU-15 as a consequence of an Eastern enlargement are relatively small. According to the GTAP database the share of CEC-7 in overall trade of EU-15 is about 4 percent and GDP in CEC-7 is about 3 percent of the GDP in EU-15. Hence, in this section model results are primarily discussed with respect to the new members. However, trade effects are also important for the EU-15, since they are mainly responsible for the resulting welfare changes.


137

The enlargement effects are primarily determined by the differences in protection levels between EU-15 and the new member countries as shown in Table 4.5 . In the process of integration into the EU and implementation of CAP regulations, the new members completely remove all border protection measures towards the old EU countries. At the same time, border protection against imports from third countries is adjusted to levels prevailing in the EU-15 at the time of enlargement. Even after partial liberalization in the EU-15, import tariff equivalents for non-grain crops and milk products are still much higher, and there are no export subsidies at all in CEC-7 prior to the integration. For grains, livestock products, other food products, and manufactures border protection in the new member countries has to be decreased. Since some of the CEC-7 have reached their WTO tariff bindings already in 1996 (Tangermann 1997; Twesten 1998), EU integration under the partial liberalization scenarios discussed here might be problematic. However, the sectors in the GTAP model are large commodity aggregates whereas the WTO regulations apply to specific products, which makes it difficult to draw a conclusion from the model results in this respect. Moreover, the final conditions for the enlargement also very much depend on negotiations between the EU-15, the new members, and their WTO partners.


138

Figure 4.2 provides the changes in net trade in CEC-7 due to an EU integration under the slow growth scenarios. Non-grain crops and meat products gain a significant trade surplus in the case of partial liberalization of the CAP, whereas the balance for other food products deteriorates. Complete liberalization only improves the net trade position in manufactures while the total trade balance hardly changes at all.

Figure 4.2: Changes in trade balance in CEC-7 after EU integration in 2005 under the slow growth scenarios (in Mill. 1992 ECU)

Note: The fast growth scenarios are omitted; the trade effects have the same direction, but are generally stronger.

Source: Own calculations.

Changes in bilateral trade flows ( Table 4.8 ) give an impression of trade creation and trade diversion effects that can be expected from EU enlargement, e.g. a shift in trade from the Former Soviet Union in the East to the EU-15 in the West. Considerable trade creation occurs within the new EU-22 in all sectors, especially in scenario plib_s imports in food products from EU-15 to CEC-7 increase heavily, by 114 percent. Furthermore, imports in non-agricultural sectors into CEC-7 are increased from all regions. On the other hand, agricultural and food imports from third countries into CEC-7 are reduced, e.g. by - 17 percent from FSU. The latter is clearly a trade diversion effect.

Under a completely liberalized CAP (lib_s) mostly trade creation effects can be observed as more agriculture and food products are imported by the CEC-7 from all model regions. Imports in other sectors also increase, but at smaller rates.


139

Table 4.8: Changes in bilateral trade flows after EU enlargement in 2005 under the slow growth scenarios (in percent)

plib_s to rarrdarr from

EU-15

CEC-7

FSU

ROW
Agriculture/Food EU-15

- 2.8

113.6

0.2

- 0.1
Other sectors

 

- 0.7

18.5

0.5

- 0.2
Agriculture/Food CEC-7

89.6

65.4

- 0.6

7.8
Other sectors

 

29.5

3.1

- 5.4

- 5.1
Agriculture/Food FSU

- 2.3

- 17.1

- 2.5

- 0.3
Other sectors

 

- 0.9

8.1

0.8

- 0.9
Agriculture/Food ROW

- 1.8

- 7.7

0.4

1.0
Other sectors

 

- 0.5

6.0

0.8

0.0
lib_s to rarrdarr from

EU- 15

CEC- 7

FSU

ROW
Agriculture/Food EU-15

0.1

47.6

0.3

- 0.2
Other sectors

 

- 0.8

16.8

0.3

- 0.2
Agriculture/Food CEC-7

- 1.0

47.4

2.1

0.1
Other sectors

 

35.0

7.1

- 1.1

- 1.2
Agriculture/Food FSU

- 0.5

14.5

- 0.2

- 0.7
Other sectors

 

- 1.0

7.4

0.5

- 0.9
Agriculture/Food ROW

0.2

16.7

0.1

- 0.6
Other sectors

 

- 0.6

4.5

0.6

0.1

Source: Own calculations.

Table 4.9 shows the percentage changes in output for the CEC-7 as a consequence of EU integration in the year 2005. The relative changes do hardly differ between the scenarios with slow and fast growth. However, in terms of absolute changes there are differences between these scenarios since the enlargement occurs at different GDP levels.

Table 4.9: Changes in output in CEC-7 after EU integration in 2005 (in percent)

 

wht gro ngc olp met mil ofp mnfcs svces

opp

plib_s - 2.3 - 5.6 15.6 2.2 11.4 0.0 - 14.9 1.7 - 0.7

- 7.0

plib_f - 2.1 - 4.9 17.5 2.7 13.0 0.0 - 13.8 1.2 - 0.8

- 6.5

lib_s - 1.7 - 3.0 - 1.9 - 2.1 - 5.9 0.8 - 7.4 4.3 - 0.6

- 3.9

lib_f - 1.8 - 2.7 - 1.5 - 2.0 - 6.0 0.6 - 6.8 3.7 - 0.7

- 3.5

Source: Own calculations.

Under partial liberalization output strongly increases in non-grain crops and meat products due to higher protection levels. Milk production does not change since the


140

quota level has been fixed at the pre-enlargement quantity. Production of other food products falls since border protection is reduced and more is imported from the old EU-15.

Complete liberalization implies broader reduction of government support in CEC-7 and lower output in agriculture and food. Production factors are moving into other sectors that were already less protected before the enlargement, e.g. manufactures, where they induce additional output growth. Under a completely liberalized agricultural policy there are no additional growth effects in CEC-7 due to EU integration.

Output changes in the model are essentially related to factor movements between sectors ( Table 4.10 ). Under partial liberalization land shifts from grains and livestock production into non-grain crops. Labor moves into agricultural and food production. When the numbers in Table 4.10 are aggregated, overall labor force in agriculture and food is increased by 3.5 percent in scenario plib_s whereas it is reduced by 0.5 in the rest of the economy. In the case of complete liberalization labor moves primarily into manufactures.

Table 4.10: Changes in demand for land and labor in CEC-7 after EU integration in 2005 (in percent)

Land wht gro ngc

olp

met mil

ofp

mnfcs svces

opp

plib_s - 3.4 - 5.9 9.5

- 0.1

- -

-

- -

- 51.5

plib_f - 3.0 - 5.1 11.1

0.5

- -

-

- -

- 51.0

lib_s 3.5 2.5 3.4

3.2

- -

-

- -

- 44.4

lib_f 4.2 3.5 4.4

4.0

- -

-

- -

- 43.7

Labor

 

 

 

 

 

 

 

 

 

 

plib_s - 1.7 - 5.5 19.5

3.6

10.9 - 0.4

- 15.2

1.3 - 1.1

- 3.1

plib_f - 1.6 - 4.9 21.4

3.8

12.5 - 0.4

- 14.1

0.9 - 1.2

- 2.5

lib_s - 4.7 - 6.1 - 4.9

- 5.1

- 5.8 0.9

- 7.3

4.4 - 0.5

- 0.1

lib_f - 5.0 - 6.0 - 4.7

- 5.2

- 5.9 0.7

- 6.7

3.7 - 0.6

0.1

Source: Own calculations.

Changes in output and trade in CEC-7 under the defined agricultural policy scenarios result in domestic price changes for output as well as factors of production ( Table 4.11 ). Factor prices for labor and capital increase in all scenarios which is due to the general expansion effect after EU integration. In the case of land one has to distinguish between the market price and the perceived producer price which are differentiated by the land subsidy. Increased demand for land in agriculture in the model can only be met by the


141

relatively small primary products sector, i.e. supply of land is almost totally inelastic. Hence, the market price for land increases heavily in all scenarios. Because of a rising value marginal product for land and despite the land subsidy the producer price for land also rises by about 14 percent under a partially liberalized CAP. Under complete liberalization the producer price for land falls. Heavily increasing land prices indicate that a significant share of the subsidy is transferred to land owners. Since land is not yet fully privatized in most transition countries, it is not clear who would ultimately benefit from this policy.

Table 4.11: Changes in domestic output prices and factor prices in CEC-7 after EU integration in 2005 (in percent)

 

plib_s

plib_f

lib_s

lib_f

land (market price)

337.8

333.4

240.1

232.4

land (producer price)

14.1

14.3

- 12.2

- 13.4

labor

3.0

3.1

1.9

2.1

capital

2.2

2.4

2.1

2.3

wht

4.0

4.0

- 1.8

- 1.7

gro

3.0

3.1

- 2.3

- 2.1

ngc

7.5

7.5

- 2.4

- 2.3

olp

5.5

5.6

- 2.1

- 1.8

met

17.3

17.4

5.6

5.9

mil

62.9

64.6

- 0.7

- 0.5

ofp

19.1

19.4

0.9

1.2

mnfcs

1.1

1.3

0.1

0.4

svces

2.2

2.4

1.1

1.3

opp

4.9

5.1

3.4

3.6

Source: Own calculations.

In the plib scenarios output prices for processed food increase significantly. The strong price increase for milk products of more than 60 percent is caused by the introduction of a quota restriction together with increased border protection. While producers clearly benefit from these changes, consumer welfare is negatively effected. This could be especially important in transition countries where the food share in household expenditure is currently still high. However, after significant economic growth in the pre-enlargement period expenditure shares might have adjusted downward to EU-15 levels. Under complete liberalization prices for most agricultural and food products, except for meat products, fall in CEC-7.


142

Finally, the resulting changes in welfare and budget expenditures will be discussed. Welfare changes for all model regions are given in Table 4.12 measured as the Equivalent Variation in million 1992 ECU.<56> The EU-15 benefits more from the enlargement after complete liberalization of the CAP, whereas the CEC-7 gain most after partial liberalization and fast growth. The other regions in the model, except the Former Soviet Union, lose in all scenarios which is mainly due to trade diversion effects of the EU integration. While EU-15 and CEC-7 abolish their internal trade barriers,<57> all other regions leave existing protection unchanged. Hence, they benefit less from rising output and trade in CEC-7. The overall global welfare increase is negligible. However, it has to be kept in mind that the numbers in Table 4.12 are the pure effects of EU enlargement. If welfare increases from the development period until 2005 are taken into account, the world as a whole is better off under a complete liberalization of the CAP.<58> In this case, EU enlargement occurs at a higher welfare level, therefore the additional welfare gain from the integration itself is smaller.

Table 4.12: Welfare changes due to an EU enlargement in 2005 under various policy scenarios (Equivalent Variation in million 1992 ECU)

 

plib_s plib_f lib_s lib_f
EU-15 840 673 1 189 1 446
CEC-7 654 1 215 67 236
Australia/New Zealand - 70 - 88 12 17
Canada - 8 - 8 - 9 - 12
USA - 148 - 190 - 142 - 202
Japan - 204 - 275 - 321 - 469
Former Soviet Union 195 286 185 260
Asia - 621 - 815 - 676 - 941
Rest of the World - 395 - 535 - 157 - 243
World Total 243 263 147 91

Source: Own calculations.

Nevertheless, the welfare gains calculated here are only part of the story. There is more to be expected than simply the static gains from trade. It can be concluded from other studies on regional integration (Baldwin and Venables 1995; Francois 1997) that the


143

new EU members will experience gains from economies of scale and increased competition as well as rising capital accumulation in the long run due to improved political stability. Francois (1997) concludes for an EU integration of the CEC-7 that the static trade effects are overwhelmed by the more dynamic effects in the longer run.

In order to provide a statement on the budgetary effects of EU enlargement, some side calculations have to be done since the standard version of the GTAP model does not single out budget expenditures and revenues. Besides, the absolute values of all subsidy equivalents in the GTAP database do not necessarily correspond to EU budget statistics, as the GTAP protection data also include "dirty" protection measures such as quantitative restrictions and non-tariff barriers.<59> Hence, only the relative changes in the value of protection from the model calculations are applied to the official data on the EU budget in 1996. The amount paid for land subsidies is calculated as 75 percent of the value of agricultural land for the EU-15 in 1996 and for CEC-7 in 2005. The results are shown in Table 4.13 .

The sum of direct payments, export subsidies, import tariffs and factor subsidies for the EU-15 is reduced by about 18 percent after partial CAP liberalization and by 34 percent after complete liberalization. With respect to changes in other expenditures, e.g. guidance funds and accompanying measures, some additional assumptions have to made, especially in the case of complete liberalization. Even in these scenarios it seems unrealistic that expenditures on structural funds will be completely removed. The assumptions are partly taken from Kirschke et al. (1997). Looking at the total budget, the savings under the various policy scenarios are even more pronounced.

In CEC-7 the introduction of a land subsidy together with changes in border protection after EU integration adds up to budget expenditures between 5.8 and 7.4 billion 1992 ECU. In the model, all subsidy payments within a region have to be paid by the regional household itself, with negative consequences for regional welfare.


144

Table 4.13: Budget effects of an EU enlargement in 2005 under various policy scenarios (in Mill. 1992 ECU)

EU-15

1996

plib_s

plib_f

lib_s

lib_f

Direct paymentsa

18 677

 

 

 

 

Export subsidies

7 060

5 385

5 299

 

 

Import tariffs

- 864

- 1 401

- 1 362

 

 

Land subsidies

 

16 511

16 511

16 511

16 511

Subtotal

24 873

20 495

20 448

16 511

16 511

Other expendituresb

19 174

17 257

17 257

8 300d

8 300d

Other revenuesc

- 1 287

- 644

- 644

 

 

Total

42 760

37 108

37 061

24 811

24 811

CEC-7

 

 

 

 

 

Output subsidies

104

 

 

 

 

Export subsidies

 

853

1 180

 

 

Import tariffs

- 768

- 591

- 660

 

 

Land subsidies

 

5 837

6 884

5 837

6 884

Subtotal

- 665

6 098

7 404

5 837

6 884

Other expendituresb

n.a.

n.a.

n.a.

n.a.

n.a.

Other revenuesc

n.a.

n.a.

n.a.

n.a.

n.a.

Total

- 665

6 098

7 404

5 837

6 884

Contribution to EU budgete

 

1 454

2 038

1 407

1 979

Net transfer from EU-15

 

4 645

5 366

4 430

4 906

a Compensation, set-aside and animal payments from the 1992 CAP reform.
b Market intervention, guidance funds, food aid refunds, accompanying measures; not available for CEC-7.
c Sugar levies; not available for CEC-7.
d Under complete liberalization "other expenditures" are defined as guidance funds and minimum intervention stocks.
e Calculated as 0.65 percent of regional GDP.

Source: Kirschke et al. (1997); EU Commission (1997c); own calculations.

However, it is most likely that the new members from CEC-7 will be net recipients in a new EU-22 for some time. Most of the support payments under the CAP will be paid out of the EU budget. The budget contribution of the new members can be calculated as 0.65 percent of GDP.<60> The bottom line in Table 4.13 provides the calculated transfer from the EU budget to CEC-7 net of their own contribution. It has to be considered, though, that these budget expenditures do not represent the total cost of enlargement from the EU perspective, since they only include direct protection measures. Structural aid and general support for CEC-7, which are already proposed in the Agenda 2000 (EU Commission 1997a), will significantly increase EU budget expenditures during the


145

enlargement process. If the welfare increase from Table 4.12 and the direct budget transfers from EU-15 are added up, the total gain in CEC-7 from the enlargement in 2005 is between 1.7 percent (lib_f) and 2.4 percent (plib_s) of GDP at pre-enlargement levels.

4.5. Summary and Outlook

In this paper, the GTAP applied general equilibrium model is used for simulating the integration of seven Central European countries into the EU in the year 2005. The Common Agricultural Policy is modified by introducing a uniform subsidy on agricultural land which is currently discussed among other proposals. The land subsidy is transferred to the new members only in relative terms according to local price levels. Moreover, despite considerable uncertainty two different development paths until the year 2005 are simulated within the modeling framework.

Welfare gains from EU enlargement are mainly due to trade creation within a new EU-22. Under partial liberalization domestic prices in CEC-7 rise, labor and land are drawn into agricultural and food production and, hence, output and exports increase in these sectors. Domestic welfare in CEC-7 rises by about 2 percent of GDP at pre-enlargement levels. This includes budget transfers from EU-15 which amount to about 5 billion ECU. Despite these increased expenditures the total agricultural budget of the EU-15 does not rise due to savings as a result of agricultural policy reform. Not included in the budget expenditures are structural funds and general support measures since they are currently difficult to forecast. Due to trade diversion most other regions in the model lose after an EU enlargement.

Under complete liberalization of the CAP output in agriculture and food in CEC-7 declines after EU integration. Labor moves out of these sectors into manufactures, where output increases and the trade balance improves significantly. The overall welfare gain in CEC-7 from enlargement is slightly less than under partial liberalization, and in this case it is almost completely due to EU budget transfers related to the land subsidy. Nevertheless, expenditures under the CAP are heavily reduced which could provide room for more general structural aid for the new members. Although the direct welfare gains from EU integration are larger under a partially liberalized CAP, in the case of


146

complete liberalization the CEC-7 are able to grow faster prior to EU enlargement and the combined effects outweigh the partial liberalization results.

While interpreting the calculated effects of an EU enlargement one has to keep in mind that the model results crucially depend on the underlying assumptions with regard to agricultural policies, the general economic development up to the date of enlargement as well as indirect effects of the EU integration, like productivity shifts, investment incentives, and changes in the policy environment. Furthermore, endogenizing dynamic effects like inter-regional capital flows in the model would also change the results.

With regard to political viability it is quite clear, in view of the Agenda 2000, that a partial liberalization scenario seems to be a more realistic option in the near future. However, the proposed policy changes might not be "green box" compatible and they might not be appropriate for the CEC-7 to meet their WTO obligations. A uniform payment on agricultural land would be less market distorting than product-related compensation payments and it is likely to lower administrative expenses related to agricultural policies. This would probably improve the position of the EU in future WTO negotiations on agricultural and food products. However, new distortions on factor markets due to the land subsidy cannot be ruled out. Depending on the design of the payment, a considerable part of the subsidy might be transferred to land owners. This effect is questionable since a major policy objective of the CAP still is income support to active farmers.

There are certainly limits to the model in the current version. Changes in the CAP and effects of the EU enlargement are analyzed on a highly aggregated level. Consideration of product-specific aspects is only possible to a limited extent. Wider product disaggregation, especially in agriculture and food, would certainly be desirable.<61> As far as regional aggregation is concerned the group of CEC-7 does not consist of homogeneous countries. On the contrary, in many aspects they are very diverse which has to be neglected as long as the group is treated as a single region in the model. Data availability puts serious constraints to any empirical modeling exercise in transition economies. The GTAP database, although probably a collection of the best information


147

available, still has deficiencies regarding countries in Central and Eastern Europe and the Former Soviet Union. This should be kept in mind when the model results are interpreted.

One of the core assumptions of the current model are well-functioning markets in all sectors and regions. This is certainly not always the case in the CEC-7 and even less in the Former Soviet Union at this point. Possible extensions of the model include the implementation of monopolistic competition, imperfect factor markets and dynamics. There is plenty of scope for modeling the situation in transition countries more realistically in the future.

4.6. References

Agra Europe (1997): No. 17/97. Bonn.

Anderson, K.; Tyers, R. (1995): Implications of EU Expansion for European Agriculture, Policies, Trade and Welfare. In: Baldwin, Haaparanta and Kiander (eds.): Expanding Membership of the European Union. Cambridge, Massachusetts, Chapter 9.

Armington, P.A. (1969): "A Theory of Demand for Products Distinguished by Place of Production. " In: IMF Staff Papers 16, p.159-178.

Baldwin, R.E.; Venables, A.J. (1995): Regional Economic Integration. In: Grossman, G.M.; Rogoff, K. (eds.): Handbook of International Economics. Amsterdam, p.1598-1644.

Banse, M.; Münch, W. (1998): Auswirkungen eines EU-Beitritts der Visegrad-Staaten. Eine Partielle und Allgemeine Gleichgewichtsanalyse. In: Heißenhuber, A.; Hoffmann, H.; von Urff, W. (eds.): Land- und Ernährungswirtschaft in einer erweiterten EU. Münster-Hiltrup, p.301-309.

Brockmeier, M.; Hertel, T.W.; Swaminathan, P.V. (1997): Integration of the Central European Economies into the European Union. In: Brockmeier, M.; Francois, J.F.; Hertel, T.; Schmitz, P.M. (eds.): Economic Transition and the Greening of Policies: Modeling New Challenges for Agriculture and Agribusiness in Europe. Kiel, p.47-73.

European Commission (1995): Agricultural Situation and Prospects in the CEEC. Summary Report. DG VI. Brussels.

European Commission (1997a): Agenda 2000. DOC/97/6. Brussels.


148

European Commission (1997b): Long Term Prospects - Grains, Milk and Meat Products. CAP 2000 Working document. Brussels.

European Commission (1997c): The Situation of Agriculture in the European Union. Brussels.

Francois, J.F. (1997): Scale Economies, Imperfect Competition, and the Eastern Expansion of the EU. In: Brockmeier, M.; Francois, J.F.; Hertel, T.; Schmitz, P.M. (eds.): Economic Transition and the Greening of Policies: Modeling New Challenges for Agriculture and Agribusiness in Europe. Kiel, p.74-90.

Frandsen, S.E.; Bach, C.F.; Stephensen, P. (1996): European Integration and the Common Agricultural Policy: A CGE Multi Regional Analysis for the Central European Countries and Denmark. Paper presented at the 50th EAAE Seminar, October 15-17, Giessen.

Gehlhar, M.J.; Hertel, T.W.; Martin, W. (1994): "Economic Growth and the Changing Structure of Trade and Production in the Pacific Rim. " In: American Journal of Agricultural Economics 76 (5), p.1101-1110.

Harrison, W.J.; Pearson, K.R. (1996): "Computing Solutions for Large General Equilibrium Models using GEMPACK. " In: Computational Economics 9, p.83-127.

Herok, C.A.; Lotze, H. (1997): "Neue Wege der Gemeinsamen Agrarpolitik: Handelseffekte und gesamtwirtschaftliche Auswirkungen. " In: Agrarwirtschaft 46 (7), p. 257-264.

Hertel, T.W.; Masters, W.A.; Gehlhar, M.J. (1997): Regionalism in World Food Markets: Implications for Trade and Welfare. Paper presented at the XXIII. International Conference of Agricultural Economists, August 10-16, Sacramento, California.

Hertel, T.W.; Tsigas, M.E. (1997): Structure of GTAP. In: Hertel, T.W. (ed.): Global Trade Analysis: Modeling and Applications. Cambridge, Massachsetts , p.9-75.

IATRC (International Agricultural Trade Research Consortium) (1994): The Uruguay Round Agreement on Agriculture: An Evaluation. Commissioned Paper No. 9. Minnesota.

Ingco, M. (1997): Agricultural protection. In: McDougall, R.A. (ed.): Global Trade, Assistance, and Protection: The GTAP 3 Data Base. Purdue University, West Lafayette, Indiana, p.14.1-17.

Kirschke, D.; Hagedorn, K.; Odening, M.; von Witzke, H. (1997): Optionen für die Weiterentwicklung der EU-Agrarpolitik. Kiel.


149

Kirschke, D.; Odening, M.; Doluschitz, R.; Fock, T.; Hagedorn, K.; Rost, D.; von Witzke, H. (1998): Untersuchungen zur Weiterentwicklung der EU-Agrarpolitik aus Sicht der neuen Bundesländer. Kiel.

Mahé, L.P.; Cordier, J.; Guyomard, H.; Roe, T. (1995): L’agriculture et l’élargissement de l’Union européene aux pays d’Europe centrale et orientale: transition en vue de l’intégration ou l’intégration pour la transition? Study for DG I of the European Commission. Brussels.

McDougall, R.A. (ed.) (1997): Global Trade, Assistance, and Protection: The GTAP 3 Data Base. Purdue University, West Lafayette, Indiana.

OECD (Organization for Economic Co-operation and Development) (1996): Agricultural Policies, Markets and Trade in Transition Economies, Monitoring and Evaluation. Paris.

Ryan, M.; Jones, W. (1997): Globalisation of the Food Industry in Central and Eastern Europe. In: Loader, R.J.; Henson, S.J.; Traill, W.B. (eds.): Globalisation of the Food Industry: Policy Implications. Reading, UK, p.29-44.

Swaminathan, P.V. (1997): Regional Integration in the Presence of Monopolistic Competition: Implications for enlarging the European Union. Ph.D. dissertation. Department of Agricultural Economics, Purdue University, West Lafayette, Indiana.

Tangermann, S. (1997): Agricultural Implications of EU Eastern Enlargement and the Future of the CAP. Paper presented at the International Agricultural Trade Research Consortium (IATRC) Symposium, June 12-14, Berlin.

Tangermann, S.; Josling, T.E.; Münch, W. (1994): Pre-accession Agricultural Policies for Central Europe and the European Union. Study for DG I of the European Commission. Brussels.

Twesten, H. (1998): Implikationen der WTO-Verpflichtungen der Visegrad-Staaten für den Beitritt zur Europäischen Union. In: Heißenhuber, A.; Hoffmann, H.; von Urff, W. (eds.): Land- und Ernährungswirtschaft in einer erweiterten EU. Münster-Hiltrup, p.125-133.

Uhlmann, F. (1996): "Die Märkte für Getreide, Ölsaaten und Kartoffeln. " In: Agrarwirtschaft 45 (1), p.18-39.

USDA (United States Department of Agriculture) (1997a): International Agricultural Trade: Europe. WRS-97-5, December, Washington D.C.

USDA (United States Department of Agriculture) (1997b): International Agricultural Baseline Projections to 2005. Washington D.C.


150

Wahl, T.; Yu, L. (1997): Central European Associates and Former Soviet Union. In: McDougall, R.A. (ed.): Global Trade, Assistance, and Protection: The GTAP 3 Data Base. Purdue University, West Lafayette, Indiana, p.16.4.1-18.

Wissenschaftlicher Beirat beim Bundesministerium für Ernährung, Landwirtschaft und Forsten (1997): Zur Weiterentwicklung der EU-Agrarreform. Angewandte Wissenschaft, Heft 459, Bonn.

World Bank (1996): World Development Report 1996. From Plan to Market. Washington D.C.


151

Appendix A-4.1 GEMPACK Command Files for Policy Scenarios

This appendix lists the command files for implementing the policy scenarios discussed in Section 4.3 in the GEMPACK modeling software. In section A-4.1.1 the first file for the growth scenarios (plib05s.cmf) is completely provided. The details for the other growth scenarios are only provided where they differ from plib05s.cmf. In section A-4.1.2 the same applies to the EU integration scenarios. The first file (plib_s.cmf) is complete, while the remaining files are only partly provided.

A-4.1.1 Command Files for Growth Scenarios until the Year 2005

!_____________________________plib05s.cmf________________________________!

! This GEMPACK command file simulates growth until 2005, with partial 

! liberalization of the CAP plus land subsidy, and slow growth in CEC-7

!_____________________________________________________________________!

!

! Which model

!

auxiliary files = tp1010eu ;

!

! Solution method information.

!

method = euler ;

steps = 10 20 30;

!

! files

!

file gtapSETS = set3-03a.har;

file gtapPARM = par3-03.dat;

file gtapDATA = eu3int1.upd;

!

! The data file "eu3int1.upd" includes EU-12 enlargement to EU-15 and

! implementation of the 1992 CAP reform from previous simulations

!

! Next is necessary if reusing pivots is to succeed in multistep simulation 

!iz1 = no ;!

Equations File  = TP3-03 ;

          model = TP1010eu ;

          version = 1 ;

          Identifier = GTAPEU15.TAB with 10x10 data ;

!

! Simulation Specification Section

!

Verbal Description =

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

 Model TP1010eu                            

 Experiment "plib05s": Growth until 2005; partial CAP liberalization with 

                       land subsidy 75 %; slow growth in CEC-7 (+21.17 %); 

                       implementation of the Uruguay round    

 Solution Method: euler 10 20 30                 

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++;

!

! Closure rule

!Exogenous pop psave


152

          saveslack govslack incomeslack

          profitslack endwslack tradslack cgdslack

          ao af afe ava atr

          to tms txs tx tm tf 

           qo(endw_comm,reg)   ;

Rest Endogenous ;





! Shocks for plib05s

! NOTE: "select from file xxx" in all cases means complete reduction from

! initial values

! Removal of set-aside requirements (These have been introduced before in

! the 1992 CAP reform) PLUS land subsidy

Shock qo("land", EU15) = uniform 5.26 ;

Shock tf("land", "wht", EU15) = uniform -79.17 ;    

Shock tf("land", "gro", EU15) = uniform -79.17 ;    

Shock tf("land", "ngc", EU15) = uniform -78.26 ;    

Shock tf("land", "olp", EU15) = uniform -75 ;    





! Cereals

Shock to("wht", EU15) = select from file toeu15a.shk ;

Shock to("gro", EU15) = select from file toeu15a.shk ;





! Oilseeds

Shock to("ngc", EU15) = select from file toeu15a.shk ;





! Sugar

Shock txs("ngc", EU15, NON_EU15) = uniform -10 ;

Shock tms("ngc", NON_EU15, EU15) = uniform -10 ;





! Beef

Shock txs("met", EU15, NON_EU15) = uniform -10 ;

Shock tms("met", NON_EU15, EU15) = uniform -10 ;





! Milk

Shock txs("mil", EU15, NON_EU15) = uniform -10 ;

Shock tms("mil", NON_EU15, EU15) = uniform -10 ;





! Animal premia

Shock to("olp", EU15) = select from file toeu15a.shk ;





! Uuruguay Round implementation (shocks taken from previous simulations)

! EU-15, Non-Agricultural sectors

Shock txs(NON_AG, EU15, NON_EU15) = select from file txs3ur.shk ;

Shock tms(NON_AG, NON_EU15, EU15) = select from file tms3ur.shk ;





! Non-EU-15, all tradable commodities

Shock txs(TRAD_COMM, NON_EU15, REG) = select from file txs3ur.shk;

Shock tms(TRAD_COMM, REG, NON_EU15) = select from file tms3ur.shk;





! Growth effects until 2005

!

! Country Order 1-5  AUZ CAN USA JPN E_U 

!               6-10 EU3 CEA FSU ASIA ROW  

! 

! Population growth

Shock pop 1-5  =  12.35   13.81  11.91   2.84   4.18;





Shock pop 6-10 =   4.18    0.60   4.07  18.87  31.66;

!

! Labor force growth

Shock qo 2  16 30  44  58  =  12.35  13.81  11.91   2.84   4.18;

Shock qo 72 86 100 114 128 =   4.18   0.60   4.07  18.87  31.66;

! 

! Physical capital growth 

Shock qo  3 17 31   45  59 =    50.6    54.1    54.1   83.0    46.6;

Shock qo 73 87 101 115 129 =    46.6    46.9    29.4  146.9    45.0;

!


153

! Total factor productivity growth (shocks taken from previous simulations)

Shock ava 1-10 =   uniform   9.68 ;

Shock ava 12-21 =  uniform  11.77 ;

Shock ava 23-32 =  uniform   9.44 ;

Shock ava 34-43 =  uniform -14.46 ;

Shock ava 45-54 =  uniform  11.03 ;

Shock ava 56-65 =  uniform  13.84 ;

! Next are the shocks for CEC-7

Shock ava 67-76 =  uniform  21.17 ;!

Shock ava 78-87 =  uniform -30.32 ;

Shock ava 89-98 =  uniform  80.72 ;

Shock ava 100-109 = uniform 24.18 ;

!

! Output File Specification (they are experiment dependent)

!

Save Environment File   plib05s ;

Solution         File = plib05s ;

Log              File = plib05s.LOG ;

!

! Updated data files

!

Updated file gtapSETS = set3-03a.upd;

Updated file gtapPARM = par3-03.upd;

Updated file gtapDATA = plib05s.upd;

!

Display file = tp3-03.dis ;

!

! Other Options

!

Extrapolation accuracy file = YES ;

CPU = yes ;

!___________________________End of Command file.__________________






154





!_____________________________plib05f.cmf________________________________!

! This GEMPACK command file simulates growth until 2005, with partial 

! liberalization of the CAP plus land subsidy, and fast growth in CEC-7

!________________________________________________________________________!

!





[...]





! Total factor productivity growth

Shock ava 1-10 =   uniform   9.68 ;

Shock ava 12-21 =  uniform  11.77 ;

Shock ava 23-32 =  uniform   9.44 ;

Shock ava 34-43 =  uniform -14.46 ;

Shock ava 45-54 =  uniform  11.03 ;

Shock ava 56-65 =  uniform  13.84 ;

! Next are the shocks for CEC-7

Shock ava 67-76 =  uniform  93.05 ;

!

Shock ava 78-87 =  uniform -30.32 ;

Shock ava 89-98 =  uniform  80.72 ;

Shock ava 100-109 = uniform 24.18 ;

[...]

!___________________________End of Command file.__________________





!_____________________________lib05s.cmf_________________________________!

! This GEMPACK command file simulates growth until 2005, with complete 

! liberalization of the CAP plus land subsidy, and slow growth in CEC-7

!________________________________________________________________________!

!





[...]





! Shocks for lib05s! NOTE: "select from file xxx" in all cases means complete reduction from

! initial values! 





Complete liberalization in all EU-15 agriculture and food sectors

Shock to(AG_FOOD, EU15) = select from file toeu15a.shk ;

Shock txs(AG_FOOD, EU15, NON_EU15) = select from file txseu15a.shk ;

Shock tms(AG_FOOD, NON_EU15, EU15) = select from file tmseu15a.shk ;





[...]

!___________________________End of Command file.__________________


155





!_____________________________lib05f.cmf_________________________________!

! This GEMPACK command file simulates growth until 2005, with complete 

! liberalization of the CAP plus land subsidy, and fast growth in CEC-7

!________________________________________________________________________!

!





[...]

! Shocks for lib05f

! NOTE: "select from file xxx" in all cases means complete reduction from

! initial values

! 

Complete liberalization in all EU-15 agriculture and food sectors

Shock to(AG_FOOD, EU15) = select from file toeu15a.shk ;

Shock txs(AG_FOOD, EU15, NON_EU15) = select from file txseu15a.shk ;

Shock tms(AG_FOOD, NON_EU15, EU15) = select from file tmseu15a.shk ;





! Total factor productivity growth

Shock ava 1-10 =   uniform   9.68 ;

Shock ava 12-21 =  uniform  11.77 ;

Shock ava 23-32 =  uniform   9.44 ;

Shock ava 34-43 =  uniform -14.46 ;

Shock ava 45-54 =  uniform  11.03 ;

Shock ava 56-65 =  uniform  13.84 ;

! Next are the shocks for CEC-7

Shock ava 67-76 =  uniform  93.05 ;!

Shock ava 78-87 =  uniform -30.32 ;

Shock ava 89-98 =  uniform  80.72 ;

Shock ava 100-109 = uniform 24.18 ;

!

[...]

!___________________________End of Command file.__________________






156

A-4.1.2 Command files for EU integration scenarios





!_____________________________plib_s.cmf________________________________!

! This GEMPACK command file simulates integration of CEC-7 into EU-15

! in 2005 after partial CAP liberalization and slow growth in CEC-7 

!_______________________________________________________________________!

!

! Which model

!

auxiliary files = tp1010eu ;

!

! Solution method information.

!

method = euler ;

steps = 10 20 30;

!

! files

!

file gtapSETS = set3-03a.har;

file gtapPARM = par3-03.dat;

file gtapDATA = plib05s.upd;

!

! The data file is taken from previous simulation plib05s

!

! Next is necessary if reusing pivots is to succeed in multistep simulation !

iz1 = no ;

!

Equations File  = TP3-03 ;

          model = TP1010eu ;

          version = 1 ;

          Identifier = GTAPEU15.TAB with 10x10 data ;

!

! Simulation Specification Section

!

Verbal Description =

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

 Model TP1010eu                            

 Experiment "plib_s": EU integration of CEC-7 in 2005, after partial 

                      CAP liberalization and slow growth in CEC-7

 Solution Method: euler 10 20 30                 

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++;

!

! Closure rule

! NOTE: the to-shocks are necessary for implementing the milk quota in CEC-7

Exogenous pop

           psave

          saveslack govslack incomeslack

          profitslack endwslack tradslack cgdslack

          ao af afe ava atr

          to(NSAV_COMM, "auz")

          to(NSAV_COMM, "can")

          to(NSAV_COMM, "usa")

          to(NSAV_COMM, "jpn")

          to(NSAV_COMM, "fsu")

          to(NSAV_COMM, "asia")

          to(NSAV_COMM, "row")        

          to(NON_AG, EU15)

          to(NON_AG, "cea")

          to(ENDW_COMM, EU15)

          to(ENDW_COMM, "cea")

          to(CGDS_COMM, EU15)

          to(CGDS_COMM, "cea")

          to("wht", EU15)  

          to("gro", EU15)  

          to("ngc", EU15)  

          to("olp", EU15)  


157

          to("met", EU15)  

          to("ofp", EU15)

          qo("mil", EU15)

          to("wht", "cea")  

          to("gro", "cea")  

          to("ngc", "cea")  

          to("olp", "cea")  

          to("met", "cea")  

          to("ofp", "cea")

          qo("mil", "cea")

          tms txs tx tm tf 

           qo(endw_comm,reg)  ;

Rest Endogenous ;





! Shocks for plib_s

! NOTE: The shocks which are used here for transferring EU-15 policies to

! CEC-7 have been previously derived and stored in files named xxx.shk

! Land subsidy

Shock tf("land", "wht", "cea") = select from file TFceats.SHK ;    

Shock tf("land", "gro", "cea") = select from file TFceats.SHK ;    

Shock tf("land", "ngc", "cea") = select from file TFceats.SHK ;    

Shock tf("land", "olp", "cea") = select from file TFceats.SHK ;    

! Direct commodity payments

Shock to("wht", "cea") = select from file TOceats.SHK ;

Shock to("gro", "cea") = select from file TOceats.SHK ;

Shock to("ngc", "cea") = select from file TOceats.SHK ;

Shock to("olp", "cea") = select from file TOceats.SHK ;

Shock to("met", "cea") = select from file TOceats.SHK ;

Shock to("ofp", "cea") = select from file TOceats.SHK ;

! Border protection measures

Shock tms(TRAD_COMM, NON_CEA, "cea") = select from file TMSceats.SHK ;

Shock tms(TRAD_COMM, "cea", "cea") = select from file TMS05ts.SHK ;

Shock tms(TRAD_COMM, "cea", "e_u") = select from file TMS05ts.SHK ;

Shock tms(TRAD_COMM, "cea", "eu3") = select from file TMS05ts.SHK ;





Shock txs(TRAD_COMM, "cea", NON_CEA) = select from file TXSceats.SHK ;

Shock txs(TRAD_COMM, "cea", "cea") = select from file TXS05ts.SHK ;

Shock txs(TRAD_COMM, "e_u", "cea") = select from file TXS05ts.SHK ;

Shock txs(TRAD_COMM, "eu3", "cea") = select from file TXS05ts.SHK ;

!

! Output File Specification (they are experiment dependent)

!

Save Environment File   plib_s ;

Solution         File = plib_s ;

Log              File = plib_s.LOG ;

!

! Updated data files

!

Updated file gtapSETS = set3-03a.upd;

Updated file gtapPARM = par3-03.upd;

Updated file gtapDATA = plib_s.upd;

!

Display file = tp3-03.dis ;

!

! Other Options

!

Extrapolation accuracy file = YES ;

CPU = yes ;

!___________________________End of Command file.__________________

NOTE: The command file for scenario plib_f looks exactly like the one for plib_s, except that data and shocks are taken from files derived in previous growth simulation plib05f .


158





!_____________________________lib_s.cmf________________________________!

! This GEMPACK command file simulates integration of CEC-7 into EU-15

! in 2005 after complete CAP liberalization and slow growth in CEC-7 

!_______________________________________________________________________!





[...]





! files

!

file gtapSETS = set3-03a.har;

file gtapPARM = par3-03.dat;

file gtapDATA = lib05s.upd;

!

! The data file is taken from previous simulation lib05s

!





[...]





!

! Closure rule

!

Exogenous pop 

          psave

          saveslack govslack incomeslack

          profitslack endwslack tradslack cgdslack

          ao af afe ava atr

          to tms txs tx tm tf 

          qo(endw_comm,reg) ;

Rest Endogenous ;





! Shocks for plib_s

! NOTE: The shocks which are used here for transferring EU-15 policies to

! CEC-7 have been previously derived and stored in files named xxx.shk

! Land subsidy

Shock tf("land", "wht", "cea") = select from file TFceavs.SHK ;    

Shock tf("land", "gro", "cea") = select from file TFceavs.SHK ;    

Shock tf("land", "ngc", "cea") = select from file TFceavs.SHK ;    

Shock tf("land", "olp", "cea") = select from file TFceavs.SHK ;    





! Direct payments (if any)

Shock to(AG_FOOD, "cea") = select from file TOceavs.SHK ;





! Border protection measures (if any)

Shock tms(TRAD_COMM, NON_CEA, "cea") = select from file TMSceavs.SHK ;

Shock tms(TRAD_COMM, "cea", "cea") = select from file TMS05vs.SHK ;

Shock tms(TRAD_COMM, "cea", "e_u") = select from file TMS05vs.SHK ;

Shock tms(TRAD_COMM, "cea", "eu3") = select from file TMS05vs.SHK ;





Shock txs(TRAD_COMM, "cea", NON_CEA) = select from file TXSceavs.SHK ;

Shock txs(TRAD_COMM, "cea", "cea") = select from file TXS05vs.SHK ;

Shock txs(TRAD_COMM, "e_u", "cea") = select from file TXS05vs.SHK ;

Shock txs(TRAD_COMM, "eu3", "cea") = select from file TXS05vs.SHK ;





[...]

!___________________________End of Command file.__________________





NOTE: The command file for scenario lib_f looks exactly like the one for lib_s, except that data and shocks are taken from files derived in previous growth simulation lib05f .


Fußnoten:

<43>

Brockmeier et al. (1997) provide an overview of these studies and discuss the advantages of general vs. partial equilibrium approaches for the analysis of EU integration of transition countries.

<44>

See Kirschke et al. (1997) for an overview.

<45>

In this paper it has been abstracted from the fact that introduction of the CAP in CEC will probably have to provide for an adjustment period of several years. For example, Banse and Münch (1997) model an integration period between the years 2003 and 2007.

<46>

A detailed description of the GTAP modeling framework is given by Hertel and Tsigas (1997) or at the internet site http://www.purdue.edu/gtap. The version 3 database is described in McDougall (1997).

<47>

This method was also used by Frandsen et al. (1996) for modeling an EU enlargement in 2005.

<48>

Here only uniform rates of technical change throughout all sectors in one region have been calculated. This could certainly be refined if more information was available on sector-specific rates of technical change. For example, Frandsen et al. (1996) assume higher rates of technical change in agriculture than in the rest of the economy. They set agricultural rates of technical change exogenously and let the other sectors adjust accordingly.

<49>

A growth rate between 6 and 7 percent is certainly a strong assumption, especially as the CEC group is very heterogeneous and growth might not be sustained over several years. Hence, this option should be seen as an upper bound for the transition countries.

<50>

Partial liberalization of ngc and met is taken as an approximation for partial liberalization of sugar and beef which belong to these commodity aggregates.

<51>

Current expenditures on direct payments have been arbitrarily reduced by 10 percent, since some degree of budget reduction is very likely to occur in any further CAP reform.

<52>

Data on CEC-7 and the Former Soviet Union are generally quite poor even in the GTAP database (Wahl and Yu 1997). This is especially true for primary factor endowments. However, the GTAP database seems to be the only source where this information is harmonized with other regions.

<53>

This idea was taken from Frandsen et al. (1996).

<54>

However, in the South East Asian economies output in some commodities doubled over the last ten years (see FAOSTAT database at the internet site http://faostat.fao.org/). Hence, some of the results in Table 4.6 might not be too unrealistic. As another example, production of oilseeds in the EU also heavily increased over the last decade (Uhlmann, 1996, p. 28).

<55>

The changes are comparable to the effects derived in Herok and Lotze (1997) for a CAP reform without any growth effects.

<56>

The Equivalent Variation is derived from the regional per-capital utility function in the GTAP model (Hertel and Tsigas 1997, p.35).

<57>

Under a complete liberalization, of course, all external barriers in agriculture and food are also reduced.

<58>

Hertel et al. (1997) calculate welfare gains from an EU Eastern enlargement that are much higher than the results in this paper. This is due to their assumption that in the course of EU integration productivity gains could be achieved in CEC-7. Here, a development period is modeled first with different rates of productivity growth until 2005, and the enlargement effects only include the pure gains from trade.

<59>

Brockmeier et al. (1997) add the EU budget as a seperate entity to the model. Yet, another problem arises, as all non-tariff barriers are converted into tariff equivalents in the GTAP database (Ingco 1997). Taking the sum of all tariff equivalents in the EU-15 as a proxy for EU budget revenue yields a much higher value than actually reported in EU statistics.

<60>

See Frandsen et al. (1996, p.15): total budget contribution of any member state is about 1.3 percent of GDP, while about half of the budget can be assigned to agriculture and food.

<61>

This could be an argument in favor of partial equilibrium modeling where single products are usually covered in more detail. However, version 4 of the GTAP database also provides more detail with respect to agricultural commodities and processed goods. More information is available from the GTAP internet site (see Footnote 4).


[Titelseite] [Widmung] [Danksagung] [1] [2] [3] [4] [5] [6] [Abkürzungsverzeichnis] [Selbständigkeitserklärung]

© Die inhaltliche Zusammenstellung und Aufmachung dieser Publikation sowie die elektronische Verarbeitung sind urheberrechtlich geschützt. Jede Verwertung, die nicht ausdrücklich vom Urheberrechtsgesetz zugelassen ist, bedarf der vorherigen Zustimmung. Das gilt insbesondere für die Vervielfältigung, die Bearbeitung und Einspeicherung und Verarbeitung in elektronische Systeme.

DiML DTD Version 2.0
Zertifizierter Dokumentenserver
der Humboldt-Universität zu Berlin
HTML - Version erstellt am:
Wed Apr 26 13:12:53 2000