INTERNATIONAL AGRICULTURE AND TRADE (Europe)--SUMMARY December 1997, WRS-97-5s December 19, 1997 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. The complete text of INTERNATIONAL AGRICULTURE & TRADE (Europe) will be available (online only) 1-2 weeks following this summary release. Paper copies will be available in February 1998. For information on ERS products and services, please call (202) 694-5050. ----------------------------------------------------------------------------- Europe Encounters Few Problems with Uruguay Round But May Face Obstacles by 2000 The European Union (EU) now finds itself in the third year of Uruguay Round implementation. This year's Europe report focuses on possible short- and long-term impacts resulting from the EU's commitments under the Uruguay Round Agreement on Agriculture (URAA). The EU's system of tariff-rate quotas (TRQs) that are specified under the Uruguay Round are expected to have only a limited impact on the volume of EU imports. EU agricultural imports under its Uruguay Round TRQs are estimated to rise only 2 percent (almost $1 billion) by 2000/01, the final year of URAA implementation. Countries of Central and Eastern Europe that concluded Europe Agreements with the EU stand to gain a large share of the new imports created under the TRQs. The CEE-10 (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia) benefit from lower tariffs for most products, while the EU counts imports under the Europe Agreements against the use of its Uruguay Round TRQs. The CEE-10 are expected to take greatest advantage of new EU market access for pork and butter, whereas the benefits of new EU market access will likely be spread among a greater number of exporting countries for poultry, cheese, egg products, and skimmed milk powder. U.S. exporters are most likely to be competitive in the EU's TRQs for eggs, egg products, some pork loins, and some cheeses. Under the URAA, the European Union and other WTO member countries were forced to reduce the volume and value of their export subsidies annually until 2000/01. The EU traditionally has relied on subsidies to export surpluses of grain and many other agricultural commodities. Whether and how the EU meets its commitments are of great concern to the United States, which competes in many of the same markets as the EU. Based on available data, it appears the EU could have difficulty meeting 2000/01 export subsidy commitment levels for cheese, beef, olive oil, and other milk products. High world prices over the past 2 years have made EU export subsidy reductions for grains easy to meet, but this could change by 2000/01. Projected grain surpluses, WTO-imposed constraints on domestic support and export subsidies, and the looming costs of EU enlargement are causing EU policy makers to consider modifications to the Common Agricultural Policy (CAP). Under modifications currently proposed by the European Commission, the elimination of set-aside will increase EU grain production,leading to rising exportable surpluses. A reduced intervention price for grains should allow the EU to export its wheat without subsidy. However, because all grains will be subject to a unified intervention price, the internal EU barley price is expected to remain above the world price. Therefore, the EU will need to continue subsidizing its barley exports. It remains unclear whether rising barley surpluses under the proposed CAP changes would push the EU above its 2000/01 export subsidy volume ceiling for coarse grains. The EU's volume of subsidized exports in 1995/96 was only 60 percent of its 2000/01 ceiling. The proposed CAP changes also aim to decrease the budgetary cost of enlargement to Eastern Europe as well as help an enlarged EU keep within its URAA commitments. These issues could be resolved by lowering CAP intervention prices and not extending compensatory payments to the CEEs. A special article examines the role of state trading in Central and Eastern Europe. Four of the CEEs--Poland, Slovenia, Slovakia and the Czech Republic--have notified the WTO of the existence of state trading enterprises (STEs) in their countries. The STEs reported by these countries are regulatory agencies that carry out intervention purchasing and administer export subsidies. On the surface, it would appear that CEE state trading institutions are not used to circumvent the commitments made to the WTO on import tariffs and export subsidies. But ambiguities persist. For one thing, the definition of state trading is vague, allowing some governments to notify the WTO that they have no state trading, when in fact they do have institutions that meet the STE criteria. Another major problem is that these institutions in many cases affect levels of imports and exports in ways that are not easily measured. Published tariff rates and calculations of producer subsidy equivalents based on price gaps do not tell the whole story. The vague definition of an STE will continue to be an issue in trade negotiations, not only in regard to CEEs but other countries. This year's Europe report raises a number of other issues the EU must face in the coming round of WTO negotiations on agricultural trade, scheduled to begin at the end of 1999. After 2000/01, EU market access opportunities are expected to remain limited for some products, particularly for pork and butter, but also eggs and poultry. Other WTO members may demand further increases in EU market access for such products. While proposed CAP changes may increase the EU's willingness to agree to further reductions in export subsidies and market price supports, they are also likely to increase its reluctance to eliminate the Blue Box,which exempts from reduction programs that are production-limiting and meet specific criteria. The Blue Box includes EU compensatory payments for arable crops and livestock. However, some WTO members will probably insist not only on further reductions in export subsidies and market price support, but also on eliminating the Blue Box exemptions. Printed copies of Europe will be available in about 2 weeks. For further information, contact Todd Morath at (202) 694-5161. Text of the full report will also be available electronically via the ERS Home Page at http://www.econ.ag.gov. For details, call ERS Customer Service at (202) 694-5050. END_OF_FILE