w 109 long-run economic aspects of the european union's eastern ...

BUDGETARY TRANSFERS IN AN ENLARGED EUROPEAN UNIONFinancial Affairs has discussed such viable, long-term solutions at length (Commission1998). 12 The reform proposals presented below are inspired by their work.The present system of direct payments, based on the principle of price compensation,should be decoupled from production and should not be available to anyfarmer entering the market after this reform. This eliminates the problem of eligibilityto farmers in the CEECs. These direct payments should also be phased out andreplaced by a system of support, which is also applicable to new Member States.Production decisions and set-aside areas should be voluntary and based on marketconditions. This would bring the EU’s direct payments in line with the WTO’s socalled‘green box’ rules. New de-coupled payments should be ‘Green Payments’linked to improved environmental farming techniques, or ‘Structural Payments’linked to better living conditions, infrastructure, alternative employment, culturalheritage preservation, etc. in rural areas.A greater share of the CAP budget should therefore be directed to rural developmentprogrammes. Farming is not the only activity in rural areas. However, it isthe lack of other services and activities in these areas that, in the decades to come,will increasingly foster depopulation and degradation. These programmes cancreate alternative occupations for people retiring from farming. The CAP shouldtherefore officially start addressing these problems, perhaps under another title orwith separate funds. Apart from the compensatory payments, which are phasedout, all funds should be available for the CEECs after accession. Export subsidiesshould be abolished and intervention prices should be set low enough to ensurethat this policy is sustainable. All these changes are important for the EU, andcrucial for the CEECs.149The latest evaluation of the Agenda 2000 reforms suggests that the EU will facesevere problems if it maintains subsidised export limits for dairy products(Commission 2000a). The quota system will damage restructuring of this sector,especially in Poland. Moreover, quotas may be very difficult to keep as producersincrease their efficiency. Therefore, the system of milk quotas should preferablynot be introduced in new Member States. This requires the elimination of thequota system in the present EU -15. While this seems politically difficult, an effort inthis direction should be seriously considered.Enlargement is now nearing and the negotiations for agriculture have officiallystarted. For the negotiators, it is said to be ‘inappropriate’ to reform the CAP at thisstage. This, however, is at best a half-truth since the negotiations deal with anacquis that is unclear. It does not provide a clear position on direct payments, forexample. Thus, if the EU wants to avoid serious misgivings within the CEECs thatmay even hamper treaty ratification later on, it should reform policies while theentry negotiations are still in full flow.