EUROPE REVISITED:
CONSEQUENCES OF INCREASED EUROPEAN INTEGRATION FOR CANADA
Many of the witnesses pointed out the critical importance of the EU achieving an improvement in both its policies and institutions. To this end, in March of this year the European Commission officially launched its blueprint for the reform of the economic management of the EU, and for its enlargement, at the turn of the century. Aptly named Agenda 2000, this Commission strategy is designed (a) to strengthen growth, competitiveness, and employment; (b) to modernize certain fundamental policies (e.g., agricultural policy and structural policy, a regional and cohesion policy designed to reduce social and economic inequalities between EU members through the advancement of regional development funding); and (c) to undertake the EU’s enlargement, with the assistance of proposed financial support contained in Agenda 2000’s pre-accession strategy.
While initiatives under the EU’s Agenda 2000 should be lauded, we have been told that deeper reforms are needed, especially to the Common Agricultural Policy (CAP), which consumes half of the EU’s budget. Farm protection has become an important financial and administrative burden on the EU; as well, CAP imposes restrictive costs on consumers, on taxpayers, and on third parties such as Canada.
What is the likelihood of a successful resolution of CAP and EU budget issues under Agenda 2000? While an agreement on Agenda 2000 was reached by EU members at a special summit meeting in Brussels in March 1999, including agreement on curbing the EU budget (e.g., CAP, structural budgets) as a prerequisite for EU enlargement, only limited progress was made.
A key challenge is to curb EU spending over the designated period, i.e., 2000-2006. The message we heard in Europe was clear: major budget reforms are absolutely necessary, especially if the EU is to begin admitting the less wealthy and more agriculturally-based countries (e.g., Poland) of Central and Eastern Europe. Without reforms, expansion will require sizeable new spending obligations; otherwise, the requirements of the new members cannot be met.
Agenda 2000 contains a financial framework for the EU for the period in question, one which will help the EU as it enters the new round of multilateral trade talks, especially in discussions on CAP reform. As Ms. Smadja told the committee, the new proposals under Agenda 2000, including a drop in financial support for the grains, beef, and dairy sectors, is expected to make up the new offer under the multilateral round of trade negotiations scheduled to take place in November 1999. The Canadian government is monitoring plans for reform of CAP and its implications for Canadian exports to the EU and third countries.
The CAP is a classic example of a system of government subsidies that, once established, is extremely difficult to dismantle. It has exacerbated the EU’s trade relations with major trading partners and has been a hindrance to multilateral moves to trade liberalization. Protection for agricultural producers continues to be a major concern for Canada. The CAP exerts two undesired effects: it restricts access to the EU market for our agricultural products; and it distorts third-country markets through EU subsidization of the production and export of agrifood products (e.g., grain). The proposed changes to the CAP, if realized, are only one step in the right direction. Much more needs to be done to reduce the need for agricultural subsidies and to change the manner in which subsidies are provided by removing direct price support (decoupling farm support from production decisions). But as Mr. de Boisseu observed, the move to decoupling is likely to proceed only gradually.
The Committee, while not having examined extensively the farm assistance measures provided under the CAP, nevertheless is quite concerned over continued EU subsidization of agricultural products. With planned spending under the CAP unfortunately remaining above the ceiling set by Agenda 2000, and with progress on reform moving slowly, we deem it imperative that the Europeans alter their trade-distorting agricultural policies. Otherwise, Canada will continue to be dangerously caught in the crossfire of a harmful subsidy war between the EU and the United States. The Committee therefore recommends:
Recommendation 3: That the federal government formulate an aggressive political strategy in advance of the World Trade Organization’s new round of multilateral trade negotiations, aimed at highlighting the serious adverse impacts of existing agricultural subsidies on the world economy and rallying international support for a full-scale assault on the continued provision of trade-distorting subsidies, especially export subsidies. Strengthened strategic alliances with like-minded countries should be vigorously pursued so that increased pressure can be placed on major subsidy providers to remove the inequities between countries in the provision of farm subsidies. |
The EU’s structural funding and policies, designed to improve the infrastructure and industrial development of poorer regions within Europe account for an additional one-third of the overall EU budget. A reform is needed. The Commission has proposed a plan that would concentrate the funding amongst fewer recipients and simplify the program. Under the Commission’s plans, no more than 0.46% of the EU’s GDP would be devoted to such regional development funding out of a total budget equal to 1.27% of the European Union’s GDP.
A recent survey of Europe in the October 23 issue of The Economist pointed to a considerable decline in the influence of the European Commission under its previous leader, Mr. Jacques Santer. The Commission’s status was clouded even further earlier this year, when an exposure of scandals and mismanagement at the Commission led to a state of near-crisis at the EU. In March 1999, all twenty European Commissioners resigned after a number of them had been implicated, by an independent committee, in fraudulent activities, nepotism and mismanagement.
The Committee is of the view that recent events should not be taken lightly, and that changes need to be made to the EU’s institutions. Above all else, the Union must strive to make itself useful and relevant. The general voter apathy experienced in the Parliamentary elections of June, 1999, suggests that voter interest in European issues may have slipped, and that voters remain much closer to their own national politicians and national capitals than to Brussels. Unless European citizens can be persuaded that the EU has a significant impact on their daily lives, they will become further disillusioned with the process of European integration.
Obviously, the new Commission will have to address the criticism of the functioning of the EU set forth in the independent committee’s report. Corruption will have to be weeded out, and reforms implemented in the running of the Commission. The management of the Commission will need to be improved under its new head, Romano Prodi, a former Italian prime minister. Mr. Prodi’s priorities include: strengthening the powers of the Commission and its president; eliminating corruption from the Commission; reforming the Commission and preparing it for EU enlargement; allying the Commission with the EU Parliament as a counterweight to national governments; and securing a role for the Commission in the running of a common foreign policy.
Even though Mr. Prodi is ambitious, it remains to be seen if the decline in the importance of the Commission will be reversed. The Economist survey notes that the void in EU leadership caused by the Commission’s decreasing status has been filled by the European Council (heads of national governments) and the Council of Ministers (groupings of national ministers) – it is the national leaders and ministers that are now driving the EU and its desired process of European integration, not the Commission. Moreover, the survey article supports this reorientation of roles, arguing that the shift to agenda-setting by heads of national governments injects an important element of democracy into policy-making, thereby alleviating somewhat the "democracy deficit" that continues to plague the EU. We agree whole-heartedly with this assessment.
Another key issue is the future status of the European Parliament, a body that had originally been designed to serve as a check on the power of the Commission, but that had not fulfilled its intended mandate. Officials from the Council of Europe informed the Committee that this is definitely an important EU issue. Within the EU, a transfer of authority from member countries to the Union has occurred, with the EU’s regulatory decisions now affecting all the Union’s membership. However, the decisions are being made by authorities (e.g., the Commission itself and the Council of Ministers) that are not fully democratic and certainly not fully accountable. Greater accountability would be useful; one could start by opening up Council of Ministers’ meetings to public scrutiny.
It remains to be seen how the relationship between the new Parliament and the EU’s central institutions will evolve, especially given the shift to the right in the new Parliament (as opposed to the new Commission, which contains 10 Socialists). A better balance needs to be struck between EU officials and Parliamentarians. The Treaty of Amsterdam, in force since May 1999, provides that the European Parliament is to have more powers. While the Parliament is a mostly consultative body, it is trying to gain access to economic and financial decision-making. For example, decisions involving more sectors are to be submitted to the Parliament for co-decision making, covering 80% of EU decisions on legislation (included are environment, health and safety, consumer protection, aid to regions, transport, structural funds, but not CAP). Julien Priestley (Secretary General, European Parliament, Brussels) told the Committee that Parliament has a role to play on major issues. However, he thought that while the Council of Ministers should listen to the Parliament, it, the Council, should have the final say on matters such as taxes.
Finally, the EU institutions and its decision-making process will have to be reformed urgently so that they will be in good working order when new members are brought in. The Amsterdam Treaty stipulates that the need for unanimity can, on occasion, be replaced by a qualified majority requirement. As Ms. Smadja told us, the unanimity requirement had often led to the "lowest common denominator" problem. Mr. de Boisseu warned of "total blockage" if the unanimity requirement were to be retained. The potential shift to qualified-majority voting is up for negotiation in the year 2000, when the EU’s governments discuss ? in an inter-governmental conference ? how to reform the Union’s institutions.
A fairly large number of countries wish to join the EU. According to Ms. Smadja, this fact should come as no surprise because European integration has led to European security and peace and has advanced democracy. In March, 1998, the EU officially launched negotiations on full EU membership with six countries: Poland, Hungary, Czech Republic, Slovenia, Estonia, and Cyprus. Applications from six others ? Bulgaria, Latvia, Lithuania, Romania, Slovakia, and Turkey ? are presently being reviewed as part of a “pre-accession strategy.” Regarding these applications, a decision to launch a new round of accession negotiations will likely be made at the end of 1999. An applicant will be allowed to join only if and when it can convince the European Commission that it can apply the so-called acquis communautaire ? the body of EU legislation to which the national legislation has to be adapted in order to become a member of the EU ? in its own country. Mr. de Boisseu told us that the current timetable for EU enlargement is not realistic, and that 2005 is much more appropriate.
In all likelihood, EU enlargement will exert important influences on both the EU itself and its principal trading partners. We were told by officials of the Department of Foreign Affairs and International Trade that admission of the six countries now under consideration will imply major EU policy reforms. Enlargement will certainly undermine CAP: the EU cannot afford to subsidize East Europe’s farmers ? who represent a higher percentage of the workforce than in the West ? in the same way that it has subsidized those in the West. The officials, along with several European witnesses, noted that the size of Poland’s agricultural sector and the prospect of its entry into the EU almost alone would result in an acceleration of CAP reform. Also, the great discrepancy in terms of economic development between the fifteen current members and the new six will prompt a revision of the EU’s structural funding (i.e., regional subsidies) and policies. Finally, the shape of the Union’s institutions will have to be altered before an expansion can occur.
Your Committee wishes to note its concern that every EU expansion to date has resulted in less access for Canadian products in certain sectors. As Canada loses certain of its traditional markets in the agricultural countries of Eastern Europe, Canada should expect the EU to agree to CAP reform, as well as to a lowering of export subsidies and a reduction in tariff rate quotas. It was brought to the Committee’s attention by DFAIT officials that tariffs in the Czech Republic, Hungary, and Poland, with certain exceptions, are generally much higher than those in EU countries. The entry of these countries into the EU should bring about a reduction in tariffs for Canadian exporters.
The Canadian government should strive to ensure that further expansion not result in a diminution in overall access to the European market for Canadian products. It is absolutely critical that an enlarged European Union not turn inward to the detriment of the interests of the Union’s international partners. The Committee therefore recommends:
Recommendation 4: That the Government of Canada endeavour, through the use of a detailed impact analysis, to anticipate the effect of EU enlargement on Canada’s specific trade and investment ties with Europe. Moreover, the government should strive to ensure that Canada’s economic interests are not adversely affected through any future enlargement but if they are, appropriate compensation should be requested from the European Union. |