Productivity and long term growth

Economic Survey of the European Union 2009: Further opening the European market to the rest of the world

 

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The following OECD assessment and recommendations summarise chapter 5 of the Economic Survey of the European Union published on 21 September 2009.

 

Contents

 

Further improving foreign access to European markets will improve efficiency and help buffer against the economic crisis

These are testing times for European and global trade policy. Progress on the Doha round of world trade negotiations stalled, global trade has collapsed and the economic crisis is creating political pressure to raise protection for domestic firms. As the world’s largest trading power, the EU has a significant interest in resisting protectionist pressures and securing further trade liberalisation. While the successful completion of Doha is not assured, there is much that the EU and other OECD countries can do to promote freer trade. Although average non–agricultural most–favoured–nation (MFN) tariffs are low, at around 4%, average MFN agricultural tariffs are considerably higher, at just under 15%. The EU remains committed to its offer to undertake a significant reduction of the border protection of its agricultural sector as part of a comprehensive multilateral trade agreement. As is the case with other OECD countries, further trade liberalisation by the EU would send a powerful free trade message to the rest of the world. In addition to its efforts in the multilateral sphere, the EU also pursues its trade policy objectives through reciprocal bilateral and regional preferential trade agreements (PTAs). Although the limited available evidence suggests that the EU’s web of PTAs has been welfare enhancing overall, more can be done to raise trade creation. Further simplification of rules of origin requirements and, where appropriate to enhance development, lowering of the thresholds for the necessary value added in partner countries should be actively considered. The argument has been made that Europe's trade defence instruments, such as anti–dumping policies, should be updated to reflect the increasingly global supply chain of European firms. However, there is no consensus among the member states about whether or how such a reform should be carried out.

 

There is further scope to improve agricultural policy

The Common Agricultural Policy (CAP) represents around 40% of the total EU budget (the total support estimate – encompassing price support and budgetary transfers – is estimated at 0.9% of GDP), and just over a quarter of gross farm receipts. A series of important reforms, including the 2008 Health Check, have significantly reduced distortions where the linkages between payments and production have been cut. The use of market price support measures has also been scaled back for many agricultural commodities. Moreover, the CAP has also become marginally more equitable as payments for landowners receiving more than EUR 5 000 under the Single Payment Scheme have been further reduced and the savings generated transferred to the Rural Development Plan. Nevertheless, there is further scope to improve the CAP. Full decoupling should be extended to the livestock meat production sector, if adverse social and environmental impacts can be addressed through more targeted support measures. Payments across agricultural producers should be flattened further, in line with the Health Check recommendations. Despite the increase in modulation following the Health Check, the CAP could better target those farmers in need of income support. In part, the unequal distribution of CAP payments is due to the way that farmland and past production patterns were distributed in Europe. But, this is exacerbated by the loose definition of income support and stabilisation objectives, the poor measurement of farm households' profitability and wealth, and the failure to separately quantify the magnitude of payments that are necessary to correct market failures relating to public goods and externalities. The Commission should consider moving to a more effective mechanism for providing income support, whether that be through subsidised private insurance targeted at farmers exposed to significant income variability, or a system of income–contingent loans. Most importantly, payments for the provision of public goods should be separated from payments to support incomes to the extent that it is possible to measure public goods produced, taking into account transaction costs.

 

How to obtain this publication

 

The complete edition of the Economic Survey of the European Union is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

 

Additional information

For further information please contact the European Union Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat’s report was prepared by Nigel Pain and Jeremy Lawson under the supervision of Peter Hoeller. Research assistance was provided by Isabelle Duong.

 

 

 

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