EC enlargement will entail controversy over agriculture: all European countries have interventionist policies, but the EFTA countries now provide substantially more support than the EC(12), while even the most advanced of the Central and East European economies provide substantially less. In Discussion Paper No. 829, Research Fellow Kym Anderson and Rod Tyers consider different groups' welfare in two cases. First, the EC(12) fully implement in the mid-1990s the CAP reforms announced in mid-1992; the EFTA countries then join the Community and reduce their agricultural protection to EC levels. Second, this enlarged EC allows the Czech and Slovak Republics, Hungary and Poland free access to its agricultural markets while again keeping CAP prices unchanged.

Anderson and Tyers draw on their multi-commodity dynamic model of world food markets, with 1990 prices and base data, to simulate both cases to the year 2000. In the first, EFTA's consumers and taxpayers gain more than its farmers lose, and its net welfare gain is $9 billion per year, while the EC(12) gain some $2 billion. In the second, Central Europe's farmers benefit far more than its consumers, and the overall welfare gain is some $37 billion per year, but this assumes that West European taxpayers cover the full costs of price support and disposal of the additional export surplus some $47 billion per year. Such trade would in effect be `tied aid', conditional on Central Europe's deliberate distortion of its food markets.

Finally, Anderson and Tyers consider how increased pressures for closer economic integration in Europe may affect protection levels. Enlargement to EFTA may tend to raise CAP prices, but renewed pressure from the Central European countries to reduce protection is likely if their bids for EC membership are effectively ignored until well into the next century. Even though granting their farmers limited preferential access would be more wasteful than direct aid, the EC(12) may well continue with this policy to reduce the risk that their demands will add to existing pressures from the US and the Cairns Group.

International Trade Implications of EC Expansion for European Agricultural Policies, Trade and Welfare
Kym Anderson and Rod Tyers

Discussion Paper No. 829, June 1993 (IT)