5 Can the CAP Survive Enlargement to the East?

Abstract

The possible enlargement of the European Union to include some of the Central and Eastern Europe countries (CEEC) poses a problem for the Common Agricultural Policy (CAP). Current price levels and subsidy rates, if appIied to the CEEC would represent an increase in budget cost of at least 5 billion ECU. Trade frictions with other countries would be exacerbated and tbe new GAlT rules on agricultural export subsidies would be violated. The alternatives presently being considered are a two-tier market in Europe, with prices higher in the current EU than in the CEEC, or firther changes in the CAP to allow for a lower market price level. The first requires an elaborate set of border controls to prevent the free flow of agricultural produce into the current EU. It would also have undesirable economic and political implications for the CEEC. The latter option requires reopening the issue of CAP reform, and will cause significant internal tensions. The paper explores the economic and policy implications of these options and presents empirical estimates on budget cost and trade flows fiom a mu1ticountry partialequilibiium agricultural trade model of the EU and the CEEC. It explores the options open to the EU to change the CAP before CEEC accession. It suggests ways in which the transition to full participation in the EU agricultural market can be managed