OVER THE PAST FEW YEARS, the member countries of the European Economic Community (EEC) have elaborated a common agricultural policy (CAP), as expressly provided for in the Treaty of Rome, which went into effect on January 1, 1958. This task has proven to be much more difficult than the creation of a common market for industrial goods, because the existing agricultural policies of the member countries, designed largely to protect farm incomes, were so divergent. The long series of negotiations to achieve a common agricultural policy were begun about eight years ago, and, after various crises and round-the-clock sessions, they have now been virtually completed. The CAP becomes fully operative in July 1968.
The implementation of the CAP has two main direct effects on the balance of payments of member countries. On the one hand, the common financing of the CAP gives rise to rapidly increasing financial transfers between the member countries. On the other hand, the protection provided in the CAP against imports from outside the EEC is inducing certain EEC countries to shift agricultural imports from cheaper non-EEC sources to more expensive EEC sources. Correspondingly, some member countries (particularly France), instead of exporting to third countries, are able to export at higher prices to their EEC partners (particularly Germany).1 This paper deals with the first effect, i.e., the financial arrangements of the CAP and their implication for the balance of payments of member countries.
There are also two main indirect balance of payments implications of the agricultural policy. The CAP will increasingly affect the volume and composition of the EEC countries’ agricultural production and trade.2 In France, for example, the common EEC prices which are becoming effective for the various agricultural products in 1967 and 1968 are, in general, higher than those that prevailed before. So in France one may expect an increase in agricultural production and exports, and at the same time a reduction in imports relative to what would have happened in the absence of the CAP. In order to measure the net effect of the CAP on the French balance of payments, it would then be necessary to determine how French imports and exports would have been affected if the additional resources devoted to agriculture in France as a result of the CAP had been put to other use. Another indirect balance of payments implication of the CAP is the impact on the relative competitive position of the EEC countries, resulting from changes in food prices and, consequently, the cost of living index and wage costs.
Mr. van Ypersele, an economist in the European Department of the Fund when this paper was prepared and now in the Asian Department, is a graduate of the University of Louvain and of Yale University. He has contributed articles to several economic journals.
A French Government study is reported to have estimated that the benefits derived by France because of this factor amounted to $47 million for 1964/65 and would rise to $77 million in 1969/70. The study was made by the Secrétariat Général du Comité Interministériel pour les Questions Européennes. It was quoted in Le Monde (Paris) on November 6, 1965.
For a discussion of this impact, see Lawrence B. Krause, European Economic Integration and the United States (The Brookings Institution, Washington, 1968), pp. 94–109.
For the dates on which common prices come into force for the various products, see Table 1, page 272.
Year beginning on July 1 and ending on June 30.
It should be noted that the EAGGF expenditures do not all constitute entirely new expenditures additional to those already undertaken in each country. A sizable share of these expenditures replaces national expenses which would have been undertaken by each country even in the absence of the CAP.
The net receipts or contributions to the EAGGF by each country are such in a balance of payments sense but not in a budgetary sense, as the aid given by the Guidance Section is given not to the governments but directly to those organizations responsible for the projects that are financed.
For fruits and vegetables, a joint market organization has been operating since August 1, 1962. However, common financing arrangements were adopted only in January 1967. According to these arrangements, expenditures of member governments on subsidies for exports of certain fruits and vegetables to non-member countries will be taken over completely by the Community. Market support, however, continues to be optional: member countries are not obliged to take market support measures, and a ceiling of $60 million (of which $40 million is earmarked for Italy) has been set for the annual expenditures on such measures.
See European Economic Community, Avis de la Commission au Conseil concernant les demandes d’adhésion du Royaume-Uni, de l’Irlande, du Danemark et de la Norwège, COM (67) 750 (Brussels), September 1967.
See European Community Information Service, The Common Agricultural Policy (Washington), July 1967.
See Parlement Européen, Documents de séance: Rapport sur le projet de budget des Communautés européennes pour l’exercice 1968, Document 213, March 11, 1968.
Common Market (The Hague), June 1966.
In estimating the amount of levies contributed to the EAGGF by each country, one should, for the purpose of this study, take into account only those levies paid on imports consumed in the importing country and not on those re-exported to another member country. Also for this study, export refunds should be ascribed to the producing country if it differs from the exporting country.