The Political Economy of the Polish Agricultural

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Mar 14, 1998 - phytosanitary control units (Rolnictwo: Zrozumieć Negocjacje, 2001). The negotiations on ...... Poland, Brussels, http://europa.eu.int/comm/agriculture/publi/peco/poland/pol_en.pdf ..... Rodzinne gospodarstwa rolne w Polsce w.
The Political Economy of the Polish Agricultural Sector’s Accession to the European Union

Katarzyna Kosior

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European University Viadrina Frankfurt (Oder), 2004

A dissertation submitted in fulfilment of the requirements for the degree of Doctor of Philosophy (Dr. phil.) at the Faculty of Economics of the European University Viadrina in Frankfurt (Oder) in July 2004

First Supervisor: Prof. Dr. Hans-Jürgen Wagener Europa-Universität Viadrina, Frankfurt (Oder) Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschafts- und Ordnungspolitik Second Supervisor: Prof. dr hab. Jerzy Wilkin Warsaw University Faculty of Economic Sciences, Chair of Political Economy

Oral examination: 08.02.2005 Academic degree awarded: Doktor der Wirtschaftswissenschaften – Dr. rer .pol Final mark: magna cum laude

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Contents Tables and figures ............................................................................................................... 6 Index of abbreviations ......................................................................................................... 7 1

2

Agriculture and EU Enlargement Processes ............................................................. 10 1.1

Eastern enlargement of the European Union .................................................... 10

1.2

The role of agriculture in the EC/EU enlargement processes ........................... 14

1.2.1

Historical development of the CAP ............................................................... 14

1.2.2

Agriculture in the past enlargements of the EC/EU ...................................... 17

1.2.3

Agriculture of the CEECs on the road to the EU ........................................... 21

1.3

Specification of research subject, research aims and research questions ....... 23

1.4

Structure of the study ........................................................................................ 26

European agricultural integration: the state of the art................................................ 28 2.1

Political economy of EU enlargement ............................................................... 29

2.2

Explaining the strength of agricultural interests ................................................ 32

2.3

East – West agricultural integration .................................................................. 35

2.3.1

Polish post-communist agriculture and peasantry in sociological research.. 35

2.3.2 Transformation and integration in agriculture in the research of agricultural economists and political scientists ............................................................................ 39 2.4 3

Summary ........................................................................................................... 45

Theoretical and methodological framework of the study ........................................... 47 3.1

Research perspective of the study .................................................................... 47

3.2

Main approaches to negotiations ...................................................................... 49

3.2.1

Basic concepts of the negotiation theory ...................................................... 51

3.2.2

General model of negotiation situation ......................................................... 52

3.2.3

Power of alternatives ..................................................................................... 54

3.2.4

Distributive and Integrative Bargaining ......................................................... 54

3.2.5

The Negotiator’s Dilemma ............................................................................. 55

3.3

Theoretical framework of the study ................................................................... 55

3.3.1

Negotiations as a two-level game ................................................................. 55

3.3.1.1

Tying hands strategy ............................................................................. 60

3.3.1.2

Cutting slack strategy ............................................................................ 61

3.3.1.3

Strategies addressed at the acceptability set of the negotiating partner 61

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3.3.2

The theory of national preference formation ................................................. 63

3.3.3

An integrated approach – the two-level games and national preferences .... 66

3.4 Approaching the two-level games in the accession negotiations between Poland and the EU ........................................................................................................ 69 3.4.1

Specificity of the EU accession negotiations ................................................ 69

3.4.2

Problems of asymmetry ................................................................................ 72

3.4.3

Hypotheses ................................................................................................... 73

3.5 4

Polish agriculture in the transformation process ........................................................ 80 4.1 4.1.1

Historical background to agricultural and rural development in Poland ............ 80 Major sectoral developments under communism (1945-1989) ..................... 81

4.2

Polish agriculture in transition from a centrally planned to a market economy . 88

4.3

The Polish agri-food economy on the eve of accession to the EU ................... 91

4.3.1

The role of agriculture in Poland’s economy ................................................. 91

4.3.2

The structure of farming and characteristics of Polish farms ........................ 94

4.3.3

Agricultural production and profitability ....................................................... 100

4.3.4

Downstream and upstream sectors ............................................................ 104

4.3.5

Foreign trade in agri-food products ............................................................. 108

4.4 5

Research methods ............................................................................................ 76

Summary ......................................................................................................... 112

National preferences in Poland with regard to agriculture and its integration to the EU 115 5.1

Social and political setting of agricultural policy making in Poland ................. 115

5.2

Agricultural policy formation 1989-2002 .......................................................... 119

5.2.1

The post-solidarity governments (1989-1993) ............................................ 119

5.2.2

The SLD-PSL government (1993-1997) ..................................................... 122

5.2.3

The rule of AWS and UW (1997-2001) ....................................................... 124

5.2.4

The SLD/UP/PSL government .................................................................... 129

5.2.5

Summary: the sources of the strength of agricultural interests in Poland... 132

5.3

Interests of domestic actors and the EU integration ....................................... 133

5.3.1

Farmers’ attitude toward the EU ................................................................. 134

5.3.2

Agricultural trade unions ............................................................................. 137

5.3.3

Food processing industry ............................................................................ 139

5.3.4

Political actors and agricultural integration ................................................. 140

5.4

Polish integration policy in the area of agriculture and the food industry ....... 142

5.4.1

Basic assumptions of national strategy for integration to the EU ............... 142

5.4.2

Agricultural policy alignment ....................................................................... 146

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5.4.2.1 5.5 6

The course of preparations for the EU accession ............................... 149

Summary ......................................................................................................... 156

The EU-Polish accession negotiations on agriculture ............................................. 159 6.1

General conditions of the accession negotiations........................................... 159

6.2

Major negotiation issues in the agricultural chapter ........................................ 166

6.2.1

Direct payments .......................................................................................... 168

6.2.2

Supply management measures .................................................................. 170

6.2.3

Food safety, veterinary and phytosanitary aspects ..................................... 171

6.3

The Polish negotiating position on agriculture ................................................ 173

6.4

First phase of the EU-Polish bargaining on agriculture 2000-2001 ................ 180

6.5

End-game of the accession negotiations: Level II .......................................... 186

6.5.1 The European Commission proposal on the EU Draft Common Position on Agriculture – January 2002 ..................................................................................... 186 6.5.2 The internal negotiations between EU member states on financial conditions of agricultural integration ......................................................................................... 188 6.5.3

Level II developments in Poland in the final stage of the negotiations ....... 194

6.5.3.1

Domestic reactions in Poland to the Commission’s January proposals 196

6.5.3.2

Poland’s preparations for final negotiations ........................................ 200

6.6 2002 6.6.1

Final negotiations at Level I - the European Council in Copenhagen: December 205 Outcomes of the accession negotiations on agriculture ............................. 209

6.6.1.1

Overall financial conditions ................................................................. 209

6.6.1.2

Direct payments, other CAP instruments and special provisions ....... 211

6.6.1.3

Supply management measures .......................................................... 215

6.6.1.4

Food safety, veterinary and phytosanitary issues ............................... 217

6.7

Testing the hypotheses ................................................................................... 220

6.7.1

Domestic scene in Poland: agents versus hawks ....................................... 221

6.7.2

Final bargaining: double-edged strategies .................................................. 223

6.7.2.1

Polish negotiators’ focus on domestic constraints .............................. 225

6.7.2.2

Intentional imposition of additional domestic constraints .................... 227

6.7.3

The EU negotiators’ actions ........................................................................ 230

6.7.3.1 6.8 7

Enlarging the Polish win-set ................................................................ 232

Summary ......................................................................................................... 237

Summary and concluding remarks .......................................................................... 239

Index of sources and literature ........................................................................................ 257

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Tables and figures

Table 4.1 Agricultural structures in Poland in 1989 .......................................................... 88 Table 4.2 The role of agriculture in Poland and in chosen European countries, 2000 ..... 92 Table 4.3 Agricultural holdings in 1996 and 2000 ............................................................. 95 Table 4.4 Sources of rural population’s income .............................................................. 100 Table 4.5 Sectoral terms of trade and rate of inflation ................................................... 101 Table 4.6 Economic accounts for agriculture .................................................................. 103 Table 4.7 Polish agri-food trade with the EU 1992-2000 ................................................ 110 Table 5.1 Budget for agriculture and Agricultural Social Security Fund in 1996-2000 ... 128 Table 5.2 Dynamics of agricultural policy formation in Poland in the transition years .... 131 Table 5.3 Major fears of Polish farmers concerning the EU accession .......................... 135 Table 5.4 Farmers’ support for Poland’s integration to the EU and the sources of their income ............................................................................................................................. 136 Table 5.5 Support to agriculture in Poland and in the EU ............................................... 146 Table 6.1 Maximum enlargement-related appropriations for commitments ................... 210 Table 6.2 Negotiating positions and outcomes of the accession negotiation on supply control measures ............................................................................................................. 215 Figure 3.1 The general model of negotiation situation ...................................................... 53 Figure 3.2 Double-edged bargaining strategies ................................................................ 59 Figure 3.3 The basic explanatory framework of the study ................................................ 67 Figure 6.1 The Process of Poland’s Accession Negotiations to the EU ......................... 166 Figure 6.2 Virtual dynamics of the negotiation process on agriculture between Poland and the EU ............................................................................................................................. 230

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Index of abbreviations AAs AMA APA ARMA ASAL AWS

Association Agreements Agricultural Market Agency Agricultural Property Agency of the State Treasury Agency for Restructuring and Modernisation of Agriculture Agriculture Support Adjustment Loan Akcja Wyborcza Solidarność (Election Action Solidarity)

BATNA BGŻ BSE

Best Alternative to a Negotiated Agreement Bank Gospodarki Żywnościowej (Bank for Food Economy) Bovine Spongiform Encephalopathy

CAEU-P CAP CDU CEE CEECs CEFTA CMO COGECA COLDIRETTI COPA COREPER

Conference on Accession to the European Union with Poland Common Agricultural Policy Christian Democratic Union Central and Eastern Europe Central and Eastern European Countries Central European Free Trade Agreement Common Market Organizations General Confederation of Agricultural Co-operatives Confederazione Nazionale Coldiretti (National Confederation Coldiretti) Committee of Agricultural Organisations Committee of Permanent Representatives

DBV

Deutscher Bauernverband (German Peasant Union)

EAGGF EC ECU ECs EFTA EU EUR, €

European Agricultural Guarantee and Guidance Fund European Community European Currency Unit European Communities European Free Trade Association European Union euro

FADN FDI FDP FNSEA FSU

Farm Accountancy Data Network Foreign Direct Investments Free Democratic Party Fédération nationale des syndicats d'exploitants agricoles (National Federation of Farmers' Unions) Former Soviet Union

GATT

General Agreement on Tariffs and Trade

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GDP

Gross Domestic Product

ha

hectare

KRUS

Kasa Rolniczego Ubezpieczenia Społecznego (Farmers‘ Social Security Fund) Krajowy Związek Rolników, Kółek i Organizacji Rolniczych (National Union of Farmers, Agricultural Circles and Agricultural Organizations)

KZRKIOR

IACS IERIGŻ IPE

Integrated Administration and Control System Instytut Ekonomiki Rolnictwa i Gospodarki Żywnościowej (Institute of Agricultural and Food Economics) International Political Economy

LFA

Less Favoured Areas

mio MRiRW

million Ministerstwo Rolnictwa i Rozwoju Wsi (Ministry of Agriculture and Rural Development) Member States Ministerstwo Spraw Zagranicznych (Ministry of Foreign

MS MSZ Affairs) NSZZ S RI

NVA

Niezależny Samorządny Związek Zawodowy Solidarność Rolników Indywidualnych (Self-governing Independent Trade Union Solidarność of Individual Farmers) Net Value Added

OECD

Organization for Economic Cooperation and Development

PGR PHARE Economies PiS PLN PO PSE PSL PSL-PL

Państwowe Gospodarstwa Rolne (state farms) Poland and Hungary Assistance for Restructuring their

SAPARD

Support for Pre-Accession Measures for Agriculture and Rural Development Stronnictwo Chrześciajńsko-Ludowe (Christian Peasant Party) Sojusz Lewicy Demokratycznej (Alliance of Democratic Left)

SChL SLD UAA UK UKIE UP URAA USD UW

Prawo i Sprawiedliwość (Law and Justice) Polish złoty Platforma Obywatelska (Civic Platform) Producer Support Estimate Polskie Stronnictwo Ludowe (Polish Peasant Party) Polskie Stronnictwo Ludowe – Porozumienie Ludowe (Polish Peasant Party – Peasant Agreement)

Utilized Agricultural Area United Kingdom Urząd Komitetu Integracji Europejskiej (Office of the Committee for European Integration) Unia Pracy (Labour Party) Uruguay Round Agreement on Agriculture American Dollar Unia Wolności (Freedom Union)

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VAT

Value Added Tax

WTO

World Trade Organization

ZOPA

Zone of Possible Agreement

ZSL

Zjednoczone Stronnictwo Ludowe (United Peasant Party

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1 Agriculture and EU Enlargement Processes 1.1

Eastern enlargement of the European Union

The current enlargement of the European Union (EU) to the east is considered as one of the biggest and the most difficult undertakings in the history of European integration. In the near future, the EU will admit 12 new member states, most of them from Central and Eastern Europe1. Not only the high number of the candidates for the EU membership, but also important conditions connected to the systemic transformation from planned to market economies in the Central and Eastern European countries (CEECs)2 make the current accession process highly complex. For the first time the EU will admit countries in which democracy and market economy have been functioning for a relatively short time. In terms of per capita Gross Domestic Product (GDP), the ten CEECs generally lag far behind the EU. At the same time, the current candidates are not homogenous as regards the level of economic development – the differences between them have been increasing along with developments in the transformation process adding to the complexity of the current enlargement of the EU3. These conditions, as well as important developments in the process of European integration in the 1990s, have contributed to a new quality of the fifth enlargement of the EU. Due to the significant economic distance between the member states of the Union and transition countries, the idea of enlargement to the east has gradually developed among the EU decision-makers. The first basic EU offer for the transition countries, put forward shortly after the collapse of the communism, was limited to economic and political association. The Association Agreements (AAs), signed with all ten CEECs between 1991 and 1996, provided a basis for the 1

Among the candidates from Central and Eastern Europe are Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic and Slovenia. The two remaining candidates are Malta and Cyprus. 2 If not otherwise specified, the abbreviation ‘CEECs’ is used throughout the study to indicate all ten candidate countries for EU membership from Central and Eastern Europe. 3 After a decade of economic transformation, GDP per capita in the ten CEECs ranged between 24 to 72 percent of the EU average. In 2000 the lowest GDP per capita was in Bulgaria and Romania – it equated only to respectively 24 and 27 percent of the EU-15 level. The highest level was in Slovenia (72 percent) and in the Czech Republic (68 percent), the next in order were Hungary (52 percent), the Slovak Republic (48 percent), Poland (39 percent), Estonia (37 percent), Lithuania and Latvia (each 29 percent) (European Commission, 2001b: 66).

1 Agriculture and EU Enlargement Processes development of trade and economic relations between the EU and the CEECs as well as allowed for extending technical and financial assistance for the transition economies initiated with the PHARE programme. Except for agriculture, which was traditionally a sensitive issue for the EU and for some CEECs, the agreements envisaged the creation of free trade areas between the EU and the CEECs within ten years. Furthermore, the AAs established a platform for political dialogue between the parties: the Association Council – the major institutional framework for the relations between the EU and individual association countries was to support further integration. Generally, the post-communist countries were interested in fast accession to the EU. Between April 1994 and January 1996 all ten CEECs submitted their applications for a membership in the EU. They regarded the adjustment processes to the EU's standards, fast access to the EU’s common policies and presence in European institutions as the essential elements for the consolidation of political and economic reforms started in 1989. In contrast, the EU member states were far more cautious as regards the accession of the post-communist countries, stressing that a candidate for EU membership should first establish conditions for stable democracy and a functioning market economy. At the Copenhagen European Council in June 1993, the EU member states specified political and economic criteria for candidates for membership in the EU (European Council, 1993). In the first instance, a candidate country had to fulfil requirements as regards the political sphere – that is it had to attain stability of institutions guaranteeing democracy, rule of law, observance of human rights, as well as respect and protection of minorities. The economic criteria of the Copenhagen arrangement stated that a candidate should have an efficient market economy, which could resist the competitive pressure and market forces operating within the EU. The third set of conditions refers to a candidate’s capability of fulfilling membership obligations, following from the Communities’ acquis communautaire. The enlargement of the Union was made conditional not only on fulfilling the criteria by candidate countries but also on the ability of the Union to absorb new members, while maintaining the momentum of European integration. For the Union, the issues related to the stability of democracy and to a functioning market 11

1 Agriculture and EU Enlargement Processes economy in the candidate countries were the principal conditions for opening the accession process. Fundamentally, the evidence of the past enlargement rounds shows that the EU has used one method for conducting the negotiations with the applicant countries. The method was exclusively focused on examining the adoption of the acquis by candidates, with little attention paid to reforms needed at the Community level (Preston, 1995: 451). The EU criteria for membership have been growing together with the evolution of the acquis communautaire and have proved to have a highly dynamic character (Mayhew, 1998: 162; Accession Negotiations, 2000: 11). The EU developments of the 1990s are considered as the most intensive in the history of European integration. Thus, the CEECs wishing to become members of the Union have been faced with a double task – they had to successfully transform their political and socio-economic systems and prepare for the challenges of the European integration processes – the Maastricht project on Political Union and Economic and Monetary Union. For these reasons, the accession negotiations with the CEECs have been considered much harder than those from the past. Not only the higher level of European integration but also the new approach of the EU towards the candidates have made the CEECs accession process more difficult (Nicolaides/Close, 1995: 291). Unlike the previous enlargements, the EU developed a special preaccession strategy for conducting the accession negotiations with the CEECs and has constantly been increasing req uirements vis-à-vis the applicant countries. According to some researchers, this has implied a significant shift in the accession negotiations from political to economic and technical merits (cf. Inotai, 1998: 157-159; Mayhew, 2000: 8-11). In 1994 in Essen, the EU adopted the strategy of enlargement to the east and in June 1995 the EU member states approved the White Book prepared by the European Commission, in which technical indications concerning implementation of the EU’s legislation in the candidate countries were laid down. The EU strategy for conducting the negotiation with the CEECs was further developed in the Agenda 2000. The document, prepared by the European Commission in July 1997, explicitly stated that the candidates could obtain only short transitional periods and no derogations, which was essentially new in the accession process (European Commission, 1997a). Furthermore, it was 12

1 Agriculture and EU Enlargement Processes underlined that the Copenhagen criteria are broad in an economic and political sense; including the issues related to the administrative and judicial capacities of the candidate countries, they have basically gone beyond the acquis communautaire. Giving the green light for the EU enlargement at the European Council in Luxembourg in December 1997, the member states repeated that ‘compliance with the Copenhagen political criteria is a prerequisite for the opening of any accession negotiations’ and that ‘economic criteria and the ability to fulfil the obligations arising from membership have been and must be assessed in a forward-looking, dynamic way’ (European Council, 1997). Additionally it was stated that the mere incorporation of the acquis into domestic legislation is not sufficient – applicant countries should also ensure that they are able to efficiently apply the Community legislation. In Luxembourg the EU member states also decided to introduce an intensified pre–accession strategy for conducting the negotiations with the CEECs which has materialised in March 1998 in the so-called Accession Partnership. The candidates were to receive additional financial assistance in order to accelerate reforms in specific sectors of their economies. Furthermore, Partnerships included a formal procedure of verification of the implementation of the Community acquis in the candidate countries. Consequently, the two completely new elements have been introduced to the process of accession negotiations with the CEECs - financial assistance with reinforced conditionality and the procedure for verification of the adoption and implementation of the acquis communautaire in the candidate states, before the effective accession (Mayhew, 2000: 9). In addition, the EU introduced the principle of monitoring and differentiation, stating that candidate countries would be judged solely on their own merits. This way the candidate countries were differentiated in the accession process, namely it was allowed that the best prepared candidates progressed more quickly in the negotiations in order to stimulate the poorer prepared candidates to catch up with the leading countries. The exact requirements of the EU and the evaluation of the candidate countries’ progress towards accession have been included in the Commission’s reports, issued every year since 1998 (European Commission, 1998a; 1999; 2000a; 2001a; 2002f). After the development of this comprehensive enlargement strategy, in

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1 Agriculture and EU Enlargement Processes March 1998, the accession negotiations with the first group of the CEECs, the socalled Luxembourg Group (the Czech Republic, Hungary, Poland, Estonia, Slovenia and Cyprus), were officially opened. In December 1999, the European Council in Helsinki decided to invite the next candidate countries to the accession talks – Bulgaria, Romania, Latvia, Lithuania, Slovakia and Malta (European Council, 1999b). 1.2 1.2.1

The role of agriculture in the EC/EU enlargement processes Historical development of the CAP

Agriculture, for the sake of its strict connections to financial and budgetary issues, has always been a central issue in the successive enlargements of the European Community (EC)4/European Union. Agriculture issues constitute the largest chapter in the EU accession negotiations. The Common Agricultural Policy (CAP) was created as the historically first and the most complex socio-economic policy of the European Community. At the time, when the Communities were established, around 20 percent of the population of the six founding member states lived in rural areas. The creation of the CAP was considered as a carefully crafted compromise between the agricultural interests of France and the needs of the German manufacturing sector (Grant, 1997: 63)5. At the same time, all member states, for the sake of the postwar food shortages, held the view that agriculture deserves special treatment (cf. Gardner, 1996). The essential objectives of the CAP, set out in article 38 of the Treaty of Rome signed in 1957, were to increase agricultural productivity, to ensure a fair standard of living for rural communities, to stabilize agricultural markets, to safeguard supplies, and to ensure that supplies reach the consumer at reasonable prices6. The fundamental directions for the future development of the CAP were outlined in July 1958, at the Stresa conference. The six founding member states

4

For simplicity the term European Community (EC) will be used also in the instances where the term European Communities (ECs) and European Economic Community (EEC) would be historically more appropriate. 5 For other explanations of the creation of the CAP see i.a. Milward (1992) and Rieger (1996, 2000).

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1 Agriculture and EU Enlargement Processes accepted the proposal according to which 75 percent of financial resources of the agricultural budget was to be devoted to market support, specifically to intervention in individual agricultural markets. The remaining 25 percent were to be spent on structural programmes and rural development7. In the following years the basic decisions for the future character of the CAP were made – in 1961-62 the first common market organizations were created and in 1964 the common grain price was fixed. Furthermore, the EC member states approved a joint financing of the CAP’s expenditure and in 1962 the European Agricultural Guarantee and Guidance Fund (EAGGF) was established. A single market, preferences given to members of the Community and financial solidarity have become the three principles underpinning the policy. In a result, the adopted regime, based on common agricultural markets and a complicated system of border measures and subsidies financed from the common budget, led to uncontrollable overproduction in the EC. Farmers, encouraged by relatively high prices, turned to intensive farming to the detriment of the natural environment. This situation and particularly the growing food surpluses contributed to a precipitous drop in world prices and to further expansion in agricultural support programs that were to protect incomes of farmers (cf. Fennel, 1997). Already in the early years of the CAP’s functioning, some reforms proposing more sound distribution of agricultural spending were put forward; however there was no political will to change the newly established policy8. Although the economic importance of agriculture, both in terms of agriculture’s share in GDP and agricultural employment, declined over time, agricultural spending still absorbed a significant part of the Community’s budget.

6

Currently the provisions concerning the CAP are covered by articles 32-38 of the consolidated version of the Treaty on European Union (alongside the ratification of the Treaty of Amsterdam the articles 44, 45 and 47 were repealed). 7 It should be stressed that the Stresa agreement on the division in agricultural spending has not been honoured, since spending on market support has tended to exceed the initially set level. See: Piccinini and Loseby (2001: 38). 8 The first complex proposal for reforms ‘Memorandum on the Reform of Agriculture in the EEC’ was put forward in 1968, by the Agricultural Commissioner Sicco Mansholt. Another important proposals concerning the CAP, presented by the European Commission after the Mansholt Memorandum and before the adoption of the MacSharry reform of 1992, were included in many discussion documents, i.a. ‘Improvement of the CAP’ of 1972, ‘Reflections on the CAP’ of 1980, ‘Common Agricultural Policy – Proposals of the Commission’ of 1980 or ‘Review of Action to Control the Agricultural Markets and the Outlook for the CAP’of 1987 (Moyer/Josling, 1990: 53).

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1 Agriculture and EU Enlargement Processes Such CAP evolution has been greatly influenced by the specific institutional structure of the Community’s decision making procedures and the power of agricultural interests. Since the Luxembourg compromise in 1966, till the adoption of the Single European Act in 1986, all decisions in agricultural matters (including matters related to the organisation of markets and fixing intervention prices) were taken unanimously (Pezaros, 2000). Not only the governments of the member states, the Commission‘s Directorate General for Agriculture, but also agricultural interest groups have been formally engaged in the decision-making processes on the CAP (Grant, 1997: 147). With very good organization both at national levels and at the Community level, farmers proved to be important actors able to influence the shape and the content of the policy. Such agricultural organisations as the French National Federation of Farmers’ Unions (FNSEA), the Italian Coldiretti and the Deutscher Bauernverband (DBV) have had an important say in domestic and European politics9. At the European level, the Committee of Agricultural Organisations in the European Union (COPA) and the General Confederation of Agricultural Co-operatives in the European Union (COGECA) have been the most powerful interest groups involved in the management of the CAP (Mazey/Richardson, 1993: 193-194; Henning, 2000: 198-201, 226). In the 1970s almost 80 percent of all spending in the Community went towards agriculture, mainly in market support. Also today agriculture, giving employment to only about 4 percent of the EU workforce and contributing to less than 2 percent to the EU’s GDP, absorbs about half of the Union’s budgetary resources. However, currently the EU is endeavouring to lower agricultural expenditures and to increase the importance of rural development and environmental measures. The share of the CAP’s spending on rural development programmes and other

9

Brian Gardner (1996) points out that domestic developments in the German Federal Republic in the 1960s had decisive impact on the evolution of agricultural policy in the Community. The position of the agricultural lobby in Germany was essentially strengthened by developments on the German political scene. After the cereals agreement in 1964, the German Free Democratic Party (FDP), a pivotal party in the German party system, won the votes of farmers, who had traditionally supported the CDU. Despite a limited number of farmers, the shift in their electoral preferences made politicians more responsive to pressures of the agricultural lobby. These developments made the French-German alliance on the CAP stronger. France, the major agricultural producer in Europe and the major beneficiary of the common policy on agriculture, strongly supported the maintenance of the CAP and increasing agricultural support. Instead, German support for the CAP was more driven by political reasons than economic ones.

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1 Agriculture and EU Enlargement Processes measures which are outside traditional market support systems, has significantly risen when compared to the early years of the CAP functioning. The CAP has been developing along with the successive enlargements of the European Community. After each enlargement wave, the CAP had to accommodate countries which were characterised by different agricultural structures and which prior to the accession pursued different agricultural policies. Due to the fact that the CAP has been a very difficult area of reforms, the following accessions have added to the complexity of this policy regime in the EU (cf. Preston, 1995). A short overview of the past instances of agricultural bargaining and specification of the negotiations’ fundamental problems will give some general insights into the negotiation dynamics on agriculture in the accession talks between the EC/EU and candidate countries.

1.2.2

Agriculture in the past enlargements of the EC/EU

At the time of the first accession talks of Denmark, Great Britain, Ireland and Norway, agricultural issues represented the crucial negotiation area. As already highlighted, agricultural regulation was the basic and the most developed part of the then European Communities’ acquis communautaire. The key candidate country, Great Britain, very carefully approached the subject of possible agricultural integration. Agriculture was one of the main reasons for the British withdrawal from establishing the European Economic Community. Great Britain rejected the project of a common market for agricultural produce envisaged in the Treaty of Rome, since it threatened her traditional imports from the Commonwealth states and could result in higher domestic prices (Grant, 1997: 72). However, when the common agricultural market was finally created in 1968, the countries remaining outside the Community started to fear that their producers would be permanently excluded from the European market and decided to seek membership in the European Community. Denmark’s and Ireland’s decision to seek membership in the Community was primarily prompted by the British decision to become a member of the organization since a major part of these countries’ exports, including agricultural products, was destined for the British 17

1 Agriculture and EU Enlargement Processes market. In contrast to Great Britain, Denmark and Ireland have been important agricultural producers and exporters. Nonetheless, the approach of all three acceding countries to the agricultural policy was more liberal than the approach of the then Community. The acceding countries had to adapt to the higher CAP prices and introduce a whole range of border measures. It is commonly agreed that the pattern of agricultural accession adopted during the first enlargement wave negatively influenced further developments of the CAP and resulted in excessive intensification of agricultural production leading to permanent food surpluses in the European Community (cf. Josling, 1998: 90). After the accession of Great Britain, the first major division between member states concerning the future of agriculture policy emerged, namely the conflict between a traditional continental, protectionist approach to agriculture, stressing the need for protecting the interests of producers, i.e. farmers’ incomes and, on the other side, the British approach, which favoured liberalisation in farm sector and consumer oriented agriculture (Piccinini/Loseby, 2001: 20). The first enlargement of the EC in 1973 has somewhat changed the CAP; rural development and structural policy in the Community gained in importance. The British pressures to secure the maintenance of support to hill and upland agriculture resulted in the adoption of the Less Favoured Areas (LFA) scheme in 1975 (Grant, 1997: 75). The two next European Community enlargements were also highly influenced by agricultural concerns. The southern EC enlargement to admit Greece, and later Spain and Portugal with their huge agricultural sectors, gave rise to a great deal of disputes between the incumbents and the acceding countries. The agricultural prices in the candidate countries were substantially lower than in the Community and particularly the Mediterranean member states were afraid of competition from the newcomers. The southern enlargement was made extremely difficult also because it coincided with the agricultural crisis in the Community, prompted by the constant food surpluses. The increase of agricultural production in the Community far exceeded both the possibilities of domestic consumption and of export and the accession of southern countries with their big agricultural sectors was initially considered as unfeasible. The CAP threatened to break the Community’s budget (Grant, 1997: 75). Yet before the accession of Greece in 18

1 Agriculture and EU Enlargement Processes 1981, awareness of the need to reform the CAP was still quite small. On the eve of the Greek entrance, France and Italy extracted from the Community increase of support for producers of Mediterranean products. Greece had to accept a five-year transitional period for a major part of its agricultural products and to agree on the system of accession compensatory amounts which were to even out the differences between the prices of Greek and the Community agricultural products. Agricultural issues had a very restraining effect, especially in the case of the accessions of two another southern countries. Particularly Spain encountered many problems and had to cope with an unyielding position of the Community’s powerful

agricultural

lobby10. However, during these negotiations

the

Community, faced with the sharpening crisis in agriculture, was forced to undertake reforms which would have eliminated the food surpluses in Europe. The breakthrough in the negotiations was possible only after the adoption of the new systems of market organization for fruit and vegetables and for olive oil in 1983. In order to prepare for the enlargement and to overcome the crisis, the system of milk quotas and limits on agricultural spending were introduced in 1984. Other measures – stabilisers (fines for exceeding the production limits) – were added in 1988, two years after the southern enlargement. The conclusion of the negotiations with Spain and Portugal and their entrance to the Community in 1986 were rendered possible only after the candidates had accepted long transitional periods in the agriculture sphere. Their agricultural sectors were to enjoy a full access to the common market after the seven-year transitional period and, in the case of olive oil, fruit and vegetables, after ten years (see Patier, 2000). Agriculture was a difficult negotiation area also in the case of the EFTA countries’ accession in 1995. The enlargement negotiations on agricultural matters with Austria, Finland, Norway and Sweden were special, since the applicant countries supported their agricultural sectors even more than the member states of the EU. It was the first accession of states for which participation in the CAP did not imply an increase in agricultural protection, but, on the contrary, it entailed the necessity of lowering the level of support given to farmers (see Rabinowicz/Bolin, 10

Spanish agriculture sector was considered the most competitive among the agricultural sectors of the southern candidate countries.

19

1 Agriculture and EU Enlargement Processes 1998). Unsurprisingly, the key issue for the EFTA countries in agriculture negotiations concerned securing transitional periods which would have protected farmers from the sudden income decline. The accession negotiations between the EFTA countries and the EU coincided with important changes within the Union as well as in the CAP itself. The EU member states adopted the programme of the borderless Single European Market that was to be completed by the end of 1992. Therefore, unlike previous enlargements, basically there was no possibility to obtain the transitional periods aimed at facilitating trade in agricultural products. Furthermore, in May 1992 the MacSharry reform of the CAP, which envisaged reduction in price support and the introduction of compensatory payments for farmers, was adopted. Equally important for the negotiations on agricultural issues were talks conducted under the GATT framework, which resulted in signing the Uruguay Round Agreement on Agriculture (URAA). Generally, the MacSharry reforms and the URAA introduced new rules for the agricultural policy making – producer support systems were to be made more transparent and overall protection in the agricultural sector was to be lowered. Therefore the EU negotiators refused the candidates’ request for transitional periods in agriculture, allowing only for introducing the so-called compensation mechanisms for farmers. The new members (i.e. Austria, Finland and Sweden) had to accept the CAP’s regime and open their agricultural markets immediately after the accession. However, apart from a transitional compensatory mechanism, many specific solutions were envisaged to accommodate the agricultural sectors of the new member states, e.g., a safeguard clause to be used in case of serious disturbances on agricultural markets, special aid for farms located north of the 62nd parallel and for farms operating in regions bordering this parallel and, a 10year transitional period for Austria to continue with national grants for mountain farms (see Josling/Kelch/Liapis/Tangermann, 1998; Kola/Hofreither/Rabinowicz, 2000). The historical experiences of the accessions to the EC/EU so far indicate that negotiations on agricultural issues have usually been protracted and closed at the very end of the accession negotiations. Furthermore, the agricultural negotiations with the candidate countries have usually run parallel with internal 20

1 Agriculture and EU Enlargement Processes EU talks on CAP reforms. However, the CAP has proved difficult to reform and the system was becoming more complex after each accession round. The EU decision makers were rather reluctant to undertake major reforms of the agricultural policy and preferred to add new instruments to the CAP to accommodate new members (cf. Preston, 1995). Overall, as a result of the 1973, 1981, 1986 and 1995 enlargements, the agricultural panorama in the EU has become quite complex. The CAP has accommodated agricultural sectors of different European countries – continental, Mediterranean, Nordic - that have had different agricultural structures and different agricultural problems. Not surprisingly, bargaining on agriculture issues, both during internal negotiations between the member states and during negotiations with third countries, has become one of the most intricate politico-economic processes in the modern world.

1.2.3

Agriculture of the CEECs on the road to the EU

As highlighted in the previous section, negotiations on agricultural issues between the EU member states and applicant countries have always been full of difficulties. Agriculture has been identified as a major source of problems also in the case of the CEECs accession to the EU. Fundamentally, the opinions that the accession of agricultural sectors of the transition countries from Central and Eastern Europe poses the greatest challenge the CAP has ever faced, have been quite common (cf. Josling, 1998: 105). Yet before the start of the accession talks agricultural sectors of the CEECs have been described as a major stumbling block and one of the „political land mines” on the way towards eastern enlargement (Baldwin, 1994; Josling/Kelch/Liapsis/Tangermann, 1998). At the same time, agricultural integration between the CEECs and the EU greatly differs from past instances

of

agricultural

integration

to

the

EU.

Fundamentally,

the

accommodation of the new members from the CEECs to the CAP has appeared to be far more difficult than the accommodation of all the previous entrants to the EU. First, the CEECs agricultural sectors are generally far bigger than the agricultural sectors of the EU member states. As a result of the eastern

21

1 Agriculture and EU Enlargement Processes enlargement, the agricultural potential of the Union will then significantly enlarge. The ten CEECs have more farmers than all 15 EU member states combined – after their accession, the number of farmers in the Union will increase from 6,7 million to about 15,7 million. The agricultural area in the EU will augment by 60 million ha to almost 200 million ha, and agricultural production will increase by 25 percent (Agricultural Situation in the EU..., 2000). Moreover, the CEECs’ farming sectors will be able to significantly increase agricultural output in the following years (European Commission, 1998b). Comparing the role of agriculture in the previous and the current EU enlargement processes, Timothy Josling has observed:

Previous enlargements have posed problems for agriculture and challenged the continuity of the CAP. The enlargement to include the CEECs may prove to be the greatest threat to the policy. The accession of some of the countries of Central and Eastern Europe, with their substantial agricultural production potentials, would inflict severe budgetary and trade policy strains on the current EU policy regime (Josling, 1998: 104).

The major difficulty for accommodating the CEECs to the CAP have stemmed from the fact that their agricultural sectors, like the rest of the economy, have been characterised by structural deficiencies left as a legacy of the communist period. The former system, based on the dominance of state and quasistate ownership and on a preponderance of bureaucratic coordination, resulted in a badly distorted structure of input and output (Kornai, 2000). Basic market reforms – liberalisation and privatisation – introduced at the turn of the 1980s and 1990s, initiated the changes in the structure of the economy. However, in agriculture, due to different reasons, the adjustments to the new economic conditions have been proceeding far more slowly than in other sectors of the economy. Additionally, owing to different patterns of agricultural development under communism, the agricultural sectors of the individual CEECs were marked by enormous diversity. Also due to varying economic performance during the transition years, the CEECs have diverged as regards the progress in agricultural reforms (see Swinnen, 2000; Davidova/Buckwell, 2000). The CAP has been then challenged with the task of accommodating agricultural sectors which have had quite different farm 22

1 Agriculture and EU Enlargement Processes structures, have been far bigger than agricultural sectors of the incumbents and in addition have a potential to significantly increase agricultural production in the future, particularly in these sectors where the EU had already coped with food surpluses. Consequently, the accession of the CEECs has fuelled a great deal of concern in the EU. It has been argued that the full and fast integration of the immense and unrestructured agricultural sectors of the post-communist countries to the EU would lead to the breakdown of the EU budget and to a CAP crisis. The reform of EU policy in the area of agriculture has been indicated as a prerequisite of the eastern enlargement (cf. Tangermann, 1997). Due to the existing Single European Market, the EU has had limited possibilities to use transitional periods for trade in agricultural products with the CEECs, as it did in the past, admitting more troublesome candidates. However, some kind of transitional period in the case of agricultural integration with the CEEC, has appeared to the EU as a must. The basic solution, which would allow for limiting the budgetary strain on the incumbents, was restricting access of the newcomers to some CAP instruments. It referred primarily to compensatory payments introduced with the MacSharry reforms, which have been absorbing the major part of the CAP budget. Such a solution has been furthered by the EU yet before the start of the formal accession talks (cf. European Commission, 1997a).

1.3

Specification of research subject, research aims and research questions

The present study focuses on one specific case – the political economy of the Polish agricultural sector‘s accession to the EU. Poland, as the biggest and most important transition economy in Central and Eastern Europe, has generally been perceived as the most difficult candidate in the process of the EU’s eastern enlargement. A major part of the problems on the road to include the CEECs in the EU has been associated with the Polish agricultural sector, which in terms of agricultural production and agricultural employment is one of the biggest among the agricultural sectors of the post-communist countries seeking EU membership. 23

1 Agriculture and EU Enlargement Processes Due to the very slow pace of structural reforms in the sector, agriculture has been considered the number one problem in Polish transition politics and in the process of preparations for the EU accession. It has often been stated that Poland, a country of a nearly 39 million inhabitants with about 19 percent of its workforce in agriculture and with around 2 million individual farms, poses the greatest challenge to the EU and the CAP (cf. Peterson/Bomberg, 1999: 124). As highlighted above, the process of agricultural integration between the transition countries and the EU, combining transformation dynamics with adjustments to the conditions of the Single European Market and to the CAP, is highly complex and multifaceted. The focus of the present study, however, is not on the analysis of economic aspects of the Polish agricultural sector’s integration to the EU, but on the analysis of bargaining between Poland and the EU which was to determine the conditions for that integration. The basic aim of the study is to describe and to explain both the course and outcomes of the accession negotiations in the agricultural chapter between Poland and the EU. The rationale for such a choice is an extensive literature devoted to analyses of economic conditions and consequences of integration in the agricultural sphere and a striking deficit of studies explaining the very negotiations on agriculture in the current EU enlargement round. From the perspective of political science and international political economy, the EU-Polish accession negotiations in the agricultural chapter represent an especially interesting research subject. There is still little knowledge about major forces that have driven the bargaining behaviours of both negotiating parties during the talks on agricultural issues. When analysing the EU enlargement negotiations, researchers have tended to take a holistic approach or just to focus on the ‘macro dimension’ of enlargement, losing sight of important details of a sectoral nature (cf. Sedelmeier, 2002). Agricultural negotiations between the EU and Poland are at the core of the present research project. However, the time frame covered by the study includes also the pre-negotiation period during which substantive positions of both negotiating parties had begun to form. The pre-negotiation phase is of paramount importance for understanding the dynamics and the outcomes of the substantive 24

1 Agriculture and EU Enlargement Processes negotiations (cf. Moravcsik, 1991, 1998; Friis, 1998). The starting point of the study is the beginning of the transformation process in 1989. However, to better understand the conditions of systemic transformation in the 1990s, the study looks back at sectoral developments under communism. The analysis ends in 2002, when the overall accession negotiations with the CEECs concluded. The thesis aims at answering the following research questions: 1. Why have reforms in the agriculture sector in Poland been proceeding far more slowly than in other economic sectors? What was the role of the expected integration to the EU for the pace of transformation processes in the Polish agriculture sector? 2. How can one explain the bargaining processes between Poland and the EU in the agricultural chapter? What factors have had a decisive impact on the dynamics and the outcomes of the accession negotiations in this policy area? Specifically, what actors have appeared to be especially powerful in the bargaining processes and whose interests have been finally secured? Aiming to answer the above specified questions, the thesis will address the socio-economic, political and institutional settings of the negotiations and their influence on the decision-making processes concerning future integration in the agricultural sphere. The analytical framework of the study will take its point of departure in the concept of international negotiations seen as a game played simultaneously in domestic and international arenas (Putnam, 1988). Following the ‘domestic politics matters’ approach to international relations, the study takes a closer look at internal developments in Poland and analyses Polish national preferences as regards agriculture and its integration to the CAP. Therefore, before the actual analysis of the accession talks in the agricultural chapter, the processes of agricultural policy-making in Poland and national preference formation regarding agricultural integration to the EU will be discussed. The analysis of national preferences in all EU member states as regards agricultural integration with the CEECs exceeds the scope of the study. Nonetheless, to explain the position of the EU on agricultural accession of the new member states, the study will present internal discussions over the future of the EU agricultural policy, undertaken by the EU member states on the eve of eastern enlargement. 25

1 Agriculture and EU Enlargement Processes Apart from providing an explanation of the agricultural negotiations between Poland and the EU, the present study will offer a historical record, showing how the EU-Polish negotiations in the agricultural chapter have developed. The analysis of agricultural bargaining will also include critical evaluation of the negotiation results, namely comparison of the major negotiation demands with the substantive negotiation outcomes. It is believed that such structured analysis will enable the author to answer the fundamental research questions of the study. It is also hoped that the present thesis, focusing on one specific case, will contribute to developing a solid conceptual framework for analysing the overall process of the EU accession negotiations, which is still lacking in academic literature.

1.4

Structure of the study

The study consists of four parts – introductory, theoretical, descriptive and empirical. Chapters one and two give a general introduction to the analysis of the chosen research problems. In the first chapter the general background to the process of eastern enlargement, the role of agriculture in the successive EU enlargement processes and in the current EU enlargement process are presented. The second chapter of the study includes a literature review. First the literature on the political economy of EU enlargement processes and the political economy of agricultural policies and then research on the current agricultural integration between the CEECs and the EU are surveyed. The third chapter presents the theoretical and methodological foundations of the study. In the first instance, the general research perspective of the study – international political economy – and the basic theoretical approaches for analysing negotiations are put forward. The core theoretical bases of the work and analytical framework of the study are presented in the following part of the chapter. The chapter proceeds then to consider the observable implications of the chosen theories and derives major hypotheses concerning the case of the EU-Polish agricultural negotiations. This part of the work ends with the presentation of the fundamental research methods needed for testing the developed hypotheses. The next, descriptive part of the 26

1 Agriculture and EU Enlargement Processes work deals with presentation of the problems of economic transformation in the Polish agricultural sector. The historical background of agricultural and rural development in Poland and the transformation processes in Polish agriculture in the 1990s are presented. The empirical part of the study is structured according to the developed analytical model. In the first part of empirical analysis the key developments on the domestic arena in Poland are analysed – dynamics of agricultural policy formation in Poland, interests of relevant domestic actors and national preferences with regard to agricultural accession to the EU. The second part of the empirical analysis concerns the negotiations on agriculture, directly. Bargaining processes – major negotiation problems, the EU internal negotiations on the CAP future and the inclusion of the new member states into its mechanisms, the negotiation positions of both negotiating parties and the actual course of the EU-Polish negotiations on agriculture – will be analysed. In the final sections of the study the developed hypotheses will be tested and the research questions answered. The closing chapter orders all findings of the study and includes major conclusions.

27

2 European agricultural integration: the state of the art The expected integration of the post-communist countries to the EU, described as the most important development after the fall of the communist regimes in Europe, has brought about a virtual flood of publications. Not surprisingly, the planned integration in agriculture, as one of the most problematic elements of the process, has been extensively analysed in academic literature. East-West integration in the agricultural area has attracted the attention of agricultural economists, agricultural policy analysts, political scientists and sociologists. A considerable part of the literature is the result of the needs of actors directly engaged in the accession process and therefore concerned about the potential economic and financial effects of agricultural integration. These studies have aimed at providing an answer to fundamental questions about the economic and political feasibility of agricultural integration between the post-communist, transition countries and the EU member states as well as about the relation between systemic transformation to a market economy and integration to the EU. The literature devoted to the analysis of the problems of agricultural integration between the CEECs and the EU can be divided into two general categories. The first category includes studies by agricultural economists who have mainly dealt with economic analysis, notably with the analysis of the economic and institutional conditions of integration and its economic and financial implications for farm sectors and overall economies in the CEECs and in the EU. Many of these studies combine quantitative analyses with policy analyses. Prescriptively oriented analyses have explored the essential elements of adjustments and preparations for the East-West agricultural integration. They have also dealt with outlining strategies for smooth integration and accommodation of large CEECs agricultural sectors to the CAP. Studies of the second category have been fundamentally focused on the analysis of political-economic aspects of the process, specifically on the determinants of decision-making processes in the agriculture area, both at national and international levels. Here the major constraints of a socio-political and institutional nature encumbering the road to agricultural integration between the CEECs and the EU have been scrutinized –

2 European agricultural integration: the state of the art particularly the structure of economic and political interests and the role played by specific interest groups and major political and social actors of the process. Particular attention was also paid to exploring the influence of economic, political and social factors on the progress of transformation processes in agricultural sectors of the post-communist countries as well as on adjustments in the EU agricultural policy regime. However, these studies, in contrast to the studies of the first category, still occupy a modest segment in the literature on the subject. These contributions, as well as economic studies oriented towards policy analysis, resort to a well-developed strand of research on determinants of agricultural support and agricultural policy making, to public choice theories, theories of institutional change and to yet developing research on systemic transformation in post-communist countries. The survey of literature will first focus on general considerations concerning the political economy of EU enlargement processes and on theoretical accounts of the determinants of agricultural policy regimes in modern economies. Then the relevant empirical studies of sociologists, economists and political scientists, analysing the problems of current agricultural transformation in the CEECs and agricultural integration to the EU, will be reviewed.

2.1

Political economy of EU enlargement

The primary research line in the analyses of the political economy of EU enlargement follows traditional political-economy considerations and probes into the distribution of political power and economic wealth that results from the integration processes (cf. Haarop, 1992; Henning/Seeck, 1994; Baldwin et al.,1997; Mayhew, 1998). Apart from discussing possible effects of enlargement on welfare distribution in the Union, political economists attempted to asses the political feasibility of new member states’ accession by specifying the interests of relevant actors of the process and their position in the structure of power relations (cf. Bofinger, 1995; Mayhew, 1998: 344-357). Since the accession of new members to the EU has always had important institutional, political, economic and social implications, many of them with visible distributive aspects, the

29

2 European agricultural integration: the state of the art enlargement processes have been characterized in academic literature as system transformative (Scheingold/Lindberg, 1970; Friis/Jarosz, 1999). However, no separate “enlargement theory” or theory of political economy of new member states' accession to the EU has been developed (cf. Sedelmeier, 2002)11. The basic question addressed by economists and political scientists dealing with the EU enlargement processes was why economic integration that leads to economic efficiency and maximises the overall welfare, encounters opposition from different groups and actors. The political economy of EU enlargement is considered to be driven by two main forces – the real economic gains or losses that result from the new members’ accession and the possible changes in the Union’s budgetary redistribution mechanisms (Mayhew, 2000: 46). On the basis of this observation, two general patterns of the political economy of accession to the EU have been distinguished. Up to now there have been either accessions of states characterised by high levels of economic development, as in the case of Great Britain, Denmark, Austria, Finland, and Sweden or accessions of poorer and less developed countries as in the case of Ireland, Greece, Spain, Portugal, and currently the CEEC. The fundamental differences between these two accession types consist in the location, sources and intensity of social and political anxieties triggered by the prospect of integration. The first group of countries were to become important contributors to the Community’s budget, whereas candidates from the second group were likely to become major recipients of the budgetary outlays. Thus considering the wealthy entrants, the EU member states were prone to conclude negotiations rapidly. In addition, social anxieties inside the Community were usually small and had only limited impact on the course of the negotiations. More important was the stance of the public in the applicant countries, which feared losing current welfare and prosperity. In the case of the second set of candidates, the position of the EU in the accession negotiations was usually more strict and the overall bargaining was essentially more difficult.

11

Some conceptual work in this area has been done and ordered by Friis/Murphy (1998, 2000) and Sedelmeier/Schimmelfennig (2002a, 2002b).

30

2 European agricultural integration: the state of the art The enlargement involves changes both in economic and political spheres. At the political level, accession of new members brings major changes in the EU’s institutional structure and may result, for some incumbents, in decreasing their position in the Union's institutions (cf. Martinez-Reyes, 2000). Furthermore, each EC/EU enlargement crucially influences the balance of power between regions, economic sectors and particular interest groups. The major reason for difficulties encountered by the negotiating parties during the accession talks is that the benefits resulting from economic integration are generally of a long-term nature and, in order to achieve them, some socio-economic groups or economic sectors have to agree to deep restructuring which involves higher unemployment rates and lower incomes (Mayhew, 1998). Furthermore, the costs of the Union's enlargement usually remain concentrated, whereas the benefits are dispersed and less visible. The traditional sectoral approach to negotiations centres the attention on expenses incurred in specific economic areas and makes an assessment of the overall benefits of the negotiated agreement more difficult (Friis/Jarosz, 1999). Thus the Union’s expansion to include new members gives rise to an increased activity of various interest groups, who fear the potential effects of integration or just want to use the enlargement process to pressure decision makers to adopt favourable policies (Bofinger, 1995). Though the accession creates large groups of winners on either side, they are rather weak and poorly organized. Instead groups of losers are generally better organized, do not face the collective action problem and aim at building powerful coalitions coming out against the prospective changes. Therefore due to the activities of specific interest groups, the final agreement between the incumbents and the applicant countries may deviate from a socially and economically optimum solution (Mayhew, 2000). What then has been the role of agricultural interest groups in the enlargement processes of the EU? Why have farmers’ interests featured so prominently in the current EU enlargement rounds? The following paragraphs review the fundamental academic contributions dealing with this puzzle.

31

2 European agricultural integration: the state of the art 2.2

Explaining the strength of agricultural interests

The literature on political economy of agricultural policy and the CAP offers interesting explanations of the strength of agricultural interests in the developed countries. Agricultural economists, political scientists and social researchers have long been intrigued about why agricultural policies in modern economies, despite the declining economic role of agriculture, are the most complex socio-economic policies absorbing large amounts of public funds. On the other hand, researchers aimed to solve the puzzle of why developing countries, despite a large rural population and a far more important role of agriculture in the economy, tended to discriminate against their agricultural sectors (cf. Swinnen/van der Zee, 1993: 261-290; Bilal, 2000: 81-93). Finally, why does agriculture in international economic negotiations, be it under the WTO or during EU enlargement processes, constitute the most difficult negotiation area, often being the major reason of a deadlock in negotiations or even of their failure? When explaining the political economy of agricultural policy, three research approaches have been used: 1) traditional ‘government maximises social welfare’, 2) collective action theory with pressure group models and, 3) the politician-voter model (de Gorter/Swinnen, 1994: 312). Traditional political economy explanations of intervention in agriculture were based on the argument of market failures, according to which governments seek to correct them and improve social welfare. Due to incomplete and imperfect markets in agriculture, state authorities have been faced with continuing problems of unstable farm incomes. The necessity of intervention in agriculture has been prompted by both generally low elasticity of demand for food and decreasing income elasticity of demand for agricultural products together with increasing levels of wealth in the society. Also, the specific conditions of farming, namely unstable climatic and weather conditions and the fact that the basic production unit in agriculture – a family farm – does not function as a typical capitalist establishment, have been particularly highlighted in explaining state intervention in agriculture. This social issue has been considered a priority not only because farmers play an important role as food producers, but also because they share responsibility for the sound

32

2 European agricultural integration: the state of the art development of rural areas. Therefore high levels of support for farmers has been considered as ideologically and morally justified. Although the role of the agricultural sector in economies is systematically decreasing, the level of agricultural support remains relatively high. Aiming at maintaining food supplies at sufficient level and at ensuring the vitality of rural areas, politicians have had to compensate farmers for declining agricultural profitability (Wilkin, 2002a). Following these fundamental observations, the EU’s CAP has been described as an integral part of the west European welfare state (see Rieger, 2000). Notwithstanding, these arguments have not fully accounted for why most of the developed countries have been choosing such welfare-distorting agricultural policies and have been so strongly defending farmers’ interests in international negotiations. The strand of research initiated by Olson and his seminal work on collective action (1965), developed later by Becker (1983), explains farm policies by focusing on the activities of interest groups and their lobbying power. The increasing level of subsidisation in agriculture in the developed countries has been thought of as a result of the ability of small farm groups, which have more homogenous preferences, to overcome the free-rider problem and hence to organize for collective action. This phenomenon was called the number paradox. In fact, the CAP and its evolution have been most often explained as determined by pressures of national and European farm lobbies and the specific institutional framework of the EU (Moyer/Josling, 1990; Grant, 1997). Explanations resorting to the institutional setting of decision-making in the EU followed Niskanen’s theory of bureaucracy, according to which civil servants, acting as budget maximisers, further opaque and sophisticated policies (cf. Nedergaard, 1995). The expansion of EU agricultural expenditures was further explained as prompted by the principle of financial solidarity assuming fixed cost shares among the EU members and by the deficiencies in EU political exchange mechanism (cf. Henning, 2000, 2002). The former factor contributed to the emergence of the ‘restaurant bill’ problem. Since agricultural support schemes are financed from the common budget, a member state that may not favour the CAP, but has to pay for it anyway, finds it preferable to include products or measures that would directly benefit its farmers, even though that entails a higher overall 33

2 European agricultural integration: the state of the art cost of the CAP (Swinnen/van der Zee, 1993; Bilal, 2000; Pezaros, 2000). The political risk of pursuing such a strategy is small, since consumers and taxpayers that bear the costs of agricultural support, are dispersed and not well informed about the essence of the system. Collecting information on various aspects of a state’s economic policy and especially on very complex agricultural support mechanisms requires effort and is time-consuming; therefore consumers and taxpayers remain rational ignorant (Downs, 1957). New research studies, following the Downsian model of interactions between politicians and voters, have found that agricultural protection and therefore the importance of agricultural policies will increase regardless of collective actions by pressure groups (de Gorter/Swinnen, 1994). The politicianvoter model indicated that the change in relative per capita endowment incomes would motivate politicians to compensate the group suffering from relative income decline, and this pattern, despite the decrease in the number of farmers, is likely to persist since the economic distribution effect offsets the political distribution effect. It has been found that as national income rises and the number of farmers falls, consumers become less sensitive to food prices (Anderson/Tyers, 1989). Furthermore, a given per capita subsidy can be financed by a lower per capita tax and resistance to subsidising agriculture weakens (de Gorter/Swinnen, 1994: 312-326; de Gorter/Swinnen, 1995: 403-413). Therefore, even informed about the nature of the state’s policy in the agriculture area, taxpayers and consumers are more prone to support the existing policy regime. Furthermore, researchers have taken note that arguments about agriculture deserving special treatment have been reinforced through the emergence of the concept of the multifunctionality of agriculture, according to which farmers are not only agricultural producers but are also responsible for the protection of the environment as well as for the development of rural areas (Buckwell et al., 1997). This explains why agricultural concerns are still very strongly represented in political decision-making in the EU, despite the fact that the power of farm interest groups in the EU has diminished over time (Kay, 2000; Rieger, 2000). Overall, there are quite developed theoretical accounts of the importance of farmers and agricultural policy regimes in modern economies. The combination of 34

2 European agricultural integration: the state of the art above characterised factors makes agricultural interests among the most represented in EU political decision-making and hence explains why, in EU enlargement processes, negotiation on agricultural issues have made up one of the most difficult parts of the accession talks. These classical contributions constitute the starting point for the analysis of determinants of the EU member states’ policies in the area of agriculture and in the area of the new member states’ inclusion in the CAP. However, the presented insights into the political economy of agriculture and agricultural policies in modern economies do not automatically provide insights into the political economy of agriculture and agricultural policies in the post-communist countries. As highlighted in the introductory chapter, due to the undergoing transformation from centrally planned to a market economy in the CEECs and due to the fact that farm sectors in the CEECs play a quite important role in the economy, planned East-West agricultural integration has seemed far more complex than the previous accessions. Analyses of sociologists, agricultural economists and policy analysts specifically devoted to the problems of transforming agricultural sectors of the CEECs, with special focus on Poland and East-West agricultural integration, will be presented in the following.

2.3 2.3.1

East – West agricultural integration Polish post-communist agriculture and peasantry in sociological research

Sociological analyses devoted to the problems of the post-communist farm sectors, farmers and peasantry constitute important contributions to understanding the political economy of agricultural policy and agricultural reforms in the CEECs. These analyses provide valuable insights as to the social determinants of the current transformation processes in this sector of the economy and its integration to EU economic structures. The present section gives a short review of the main findings concerning Polish agriculture, rural areas and the Polish peasantry, which due to different developments under communism, particularly due to the survival of private farming, is considered to be a special case.

35

2 European agricultural integration: the state of the art Sociologists and other social researchers have essentially focused on the following research issues: -

farmers and rural inhabitants’ position and role in the systemic transformation, their position in the changing social structure, system of values, attitudes and behaviour strategies of both subsistence and market farmers, the impact of economic restructuring on the processes of disintegration of the peasant class (Halamska, 1991; Gorlach/Saręga, 1991; Fedyszak Radziejowska, 1995; Wieruszewska, 1997; Podedworna, 2001; Gorlach, 2001);

-

participation of farmers and rural inhabitants in public life, interest groups’ activities and relations between farmers and the state (cf. Gorlach/Mooney, 2000; Foryś/Gorlach, 2002);

-

main problems of adjusting post-communist agriculture to EU standards, with special focus on socio-cultural constraints and awareness barriers in rural areas regarding integration to the EU (cf. Kośmicki/Czaja/Janik, 2000). Particularly interesting observations emerge from the studies explaining

position and the role of peasants and farmers under communism and in the postcommunist period. Sociological accounts of the economic and social situation in agriculture have been based both on an historical approach looking at the complex relationships between the state and farmers in the communist period and on institutional perspectives stressing the importance of socio-cultural factors for current economic performance in the agriculture sector (cf. Gorlach, 2001; Kocik, 2001). In contrast to western farmers, farmers, or more appropriately peasants in communist Poland, and also in other CEECs, had not been treated as a relevant segment of society needed to protect traditional values or to maintain ‘the rural patrimony’. Differences between western and eastern farmers involved both their role in society and the set of values and attitudes towards the external world. According to Marxist ideology, peasants and their small farms have been considered an anachronism. The communist state embarked then on the programme of massive collectivisation of agriculture and on the programme of converting peasants into agriculture workers engaged in large scale and socialized 36

2 European agricultural integration: the state of the art farms. By and large, peasants have been considered the awkward class in communist countries, and particularly in Poland where collectivisation efforts did not succeed (see Shanin, 1972; Gorlach, 1995). The weak socio-political position of peasants in the communist regimes has been explained by their cultural subordination, economic exploitation and paradoxically by the fact that they were 12

numerically preponderant (see Shanin, 1987) . In contrast to farmers in western democracies, who proved to be successful in winning large amounts of public support, farmers in Poland had been constantly threatened by the communist state with collectivisation programmes and discriminated against by the small, socialised sector of agriculture. In order to maintain their private property, farmers in Poland developed and employed a variety of defence strategies. However, new systemic conditions brought a fundamental change in the position and role of farmers in society and in politics – farmers became important political force able to effectively pressure the government for public support. Basically, the current situation in Polish agriculture and rural areas – notably the relations between farmers and the state, farmers’ system of values, their attitudes towards the market and adaptation strategies to new economic conditions – has been to a large degree explained by sociologists and other social researchers as the result of experiences gathered during the communist and precommunist period. Fundamentally, sociological analyses point out that the underdog position of peasantry under communism has had an important impact on further developments in Polish agriculture. Gorlach (2001: 66) has aptly noted that the former threat to farmers – the ‘communist state’ – has been replaced in farmers’ minds by a new one – the ‘market economy’. The system of ‘repressive tolerance’, being in force for more than 40 years, has turned into the system of ‘oppressive liberty’ after 1989. Therefore, in the peasants’ view of the social world not much has been changed. Such attitudes have been determined by very negative economic experiences of the first years of the transformation process. Sociological surveys have showed that the majority of peasants and farmers in 12

This observation is consistent with already mentioned findings of the literature on the political economy of agricultural policy, namely that farmers in the developed countries tend to be subsidised whereas farmers in the developing countries, despite the fact that they are numerically preponderant, tend to be discriminated against.

37

2 European agricultural integration: the state of the art Poland have had clearly negative attitudes towards a market economy and opted for total state interventionism in the agriculture sector (Chłop, rolnik, farmer...., 2000). The experiences, values and attitudes farmers gathered in the previous system have seemed to militate against adjustment processes to market conditions. Particularly, the lack of social capital in rural areas has been indicated as one of the most important reasons for the slow pace of market reforms in the agriculture sector in Poland. Some features of Polish peasants and Polish peasant families, highlighted by sociologists – i.e. strong feeling of resentment, learnt helplessness, a culture of poverty and strong distrust to state institutions, state policy and to the others – have been considered important constraints on the processes of civil society’s creation in rural areas and processes of structural changes in the sector (cf. Halamska, 1991; Grabowska/Szawiel, 2001: 152). Sociologists also shed light on the sources of anti-integration and anti-EU phobias among Polish farmers and on the problem of the awareness barriers in Polish rural areas as regards Poland’s integration to the EU (cf. FedyszakRadziejowska, 2000a; Wieruszewska, 2000). It has been concluded that farmers’ attitudes towards the EU have overlapped with their negative attitudes towards a market economy. Despite the fact that farmers will be the first major beneficiaries of the accession to the EU, they are the major opponents of EU integration, fearing that it would be a continuation of difficult transition years (cf. Kocik, 2001). Overall, sociological analyses have shown that the farmers’ community in Poland is characterised by a combination of features that act against smooth adaptations to a market economy and EU standards. These features have largely been determined by the socio-cultural legacies of the communist period and negative experiences from the first years of systemic transformation. The Polish peasantry has once again been described as an awkward class – in the communist period Polish peasants rejected collectivisation and the communist view of agriculture, in the post-communist period they proved the most anti-market and anti-EU social class.

38

2 European agricultural integration: the state of the art

2.3.2

Transformation and integration in agriculture in the research of agricultural economists and political scientists

As already mentioned, the specificity of the current EU enlargement round results from the fact that the acceding countries are in the process of systemic transformation. The fundamental question raised by agricultural economists was whether integration to the CAP, which has been considered as essentially driven by a political rationale and protectionist strategies, is appropriate for the evolution that CEEC farm sectors have been undergoing and whether the CAP is able to survive EU eastern enlargement (cf. Josling, 1998). To address these questions, agricultural economists started from considerations concerning systemic transformation in agriculture sectors of the CEECs and its relation to the process of accession to the EU (cf. Davidova/Buckwell, 2000; Swinnen, 2000; Hartell/Swinnen, 2000; Tangermann/Banse, 2000; Goetz, 2001). In many studies a number of concerns relating to the possible impact of the inclusion of the CEECs agriculture sectors to the unreformed CAP have been raised. Agricultural economists have specifically explored the implications of enlargement for agricultural markets, structure and level of agricultural production, trade, agricultural support, budgetary spending, and the farmers’ welfare in the CEECs and the EU (Anderson/Tyers, 1995; European Commission, 1996, 2002c; Münch/Guba, 1997; Fuller et al., 2000; Banse et al., 2000; Piskorz, 2000)13. Starting from studies devoted to agricultural transformation, four main elements of agricultural reforms in the transition economies have been identified: -

market liberalisation which involves price and trade liberalisation and removing subsidies to agricultural producers and consumers;

-

farm restructuring which involves privatisation and land reform and changes in the farm organization;

-

reforms of upstream and downstream operations, that is privatisation and restructuring of upstream enterprises, which provide agriculture with

13

To estimate possible effects of the eastern enlargement in the agriculture area, several models have been used, starting from the price and policy driven comparative static model (European Simulation Model) (Josling/Tangermann, 1994), to general equilibrium models, partial equilibrium models and combinations of the two latter (see Banse et.al., 2000; Münch, 2000).

39

2 European agricultural integration: the state of the art agricultural inputs as well as downstream enterprises which deal with storage, transportation, processing and distribution of agricultural products; -

the creation of supporting market infrastructure: establishing the institutions and services needed for a well-functioning, market-oriented agricultural economy, such as i.a. rural banking and finance, market information systems, and commercial law (Liefert/Swinnen, 2002: 2-3). What are then the major observations of economists concerning the

relation between transformation and integration in agriculture? Generally, transformation of the CEECs to a market economy has been considered a broader process, in which integration into EU economic structures has played a very important, auxiliary role (cf. Piazolo, 2000). For the sake of developments in world agriculture and overall economic benefits resulting from integration to the EU, the integration of the CEECs’ agriculture to the CAP has been considered a natural solution, which has had no real alternative. However, there are issues requiring deep consideration concerning what kind of CAP the CEECs should have been included in and what economic reforms and adjustments should have been taken up primarily in order to ensure smooth integration. The adjustments of the CEECs’ agricultural sectors to EU conditions have been seen as proceeding in four basic spheres, specifically in real, trade, institutional and regulation (cf. Piskorz et al., 1996). The first three spheres of adjustments correspond with economic reforms required for the creation of a market economy, as defined by Liefert and Swinnen. The basic reforms such as price and trade liberalisation, privatisation of agricultural land and privatisation of major parts of upstream and downstream industries were introduced in most of the CEECs already in the first transition years. Adjustments in the real sphere concern changes in agricultural structures (i.a. in farm structures, structure of production factors, productivity levels). The changes in the real structures of agriculture determine agricultural productivity, farm efficiency and agricultural incomes and are part of transformation to a market economy, but as such they did not represent a necessary condition for the integration to the EU (cf. Wilkin, 2000d: 35). Cross-country and country analyses of economic transformation in agriculture sectors of the CEECs have highlighted 40

2 European agricultural integration: the state of the art the existence of severe constraints to restructuring processes. Particularly, countries that were characterised by an unfavourable structure of production factors, scattered land and low productivity levels, like Poland, have been expected to encounter significant difficulties after the entry to the single European market. The structural backwardness of agriculture has been indicated as one of the most important sources of the bad competitive position of the CEECs farmers vis-à-vis their EU counterparts (cf. Poulquin, 2001; Gorton et al., 2001). Therefore, a common view was that agriculture, due to competitive pressures, needs some concentration and intensification of production. However, at the same time it has been stressed that the issue of the desirable level of concentration and intensification should be addressed before the accession to the EU, particularly in the context of developments in EU agriculture (Hunek, 2000; Rowiński, 2000b, 2000c; Woś, 2001). Other fundamental elements of agricultural reforms involved changes in the institutional sphere, like creating a supporting market infrastructure: a system of market information, stock exchanges, competitive rural banking and an adequate legal framework for a functioning market economy. Development of an adequate institutional market infrastructure, has been indicated as one of the most demanding elements and at the same time the most important one in the process of agricultural

reforms

in

the

CEECs

(cf.

Frohberg/Poganietz,

1998;

Frohberg/Weingarten, 1999). Adjustments in the institutional sphere also involve more complex changes of a social nature, like farmers’ values and attitudes towards state and market, ways of doing business in agriculture and developing cooperation potential. Polish agricultural economics literature puts great emphasis on the social barriers encumbering institutional changes in rural areas, particularly on the state of consciousness of rural inhabitants and farmers’ attitudes towards the state, the market, and local government (Wilkin, 1998b: 83; 2000e)14. The slow pace of institutional changes has been indicated as the fundamental weakness of agriculture, hugely affecting its competitiveness. This appeared as a particularly disturbing development, since in contrast to adjustments in the real 14

As highlighted in the previous section, sociological analyses indicated that the constraints of a socio-cultural nature encumbering adaptations to a market economy are quite enduring in Polish rural areas.

41

2 European agricultural integration: the state of the art sphere, adjustments in the institutional area have been considered indispensable conditions for successful integration to the EU. Considering the regulation sphere, adaptations of the CEECs national agricultural policies to the CAP have been considered equally important for successful integration to the EU as adjustments in the institutional sphere. Agricultural policy alignment, however, has not been part of reforms needed for the creation of a market economy (cf. Rowiński, 1998; 2000b). Notwithstanding, these developments have been a fundamental element of the CEECs’ preparations for the integration with the EU. It has been found that the degree of policy alignment both among the CEECs and with the EU prior to enlargement would considerably determine the overall accession costs (cf. Hartell/Swinnen, 2000a). Since integration has been considered as a process requiring mutual adjustments, agricultural economists have dealt not only with the analysis of needed adjustments in the candidate countries, but also with the analysis of needed adjustments in EU agricultural policy. Researchers attempted to outline detailed strategies of the adaptation of the CAP to eastern enlargement as well as to the challenges of WTO negotiations on agricultural trade liberalisation, especially regarding elimination of export subsidies and limitations of direct payments

(Ockenden/Franklin,

1995;

Tangermann/Josling,

1994,

1995;

Tangermann, 1997). It has been commonly concluded that reforms of the CAP are a prerequisite of the eastern enlargement of the EU. Agricultural economists indicated that other economic sectors in the enlarged Union, consumers and taxpayers, might suffer from economic losses if the CEECs were covered with the unreformed CAP (Banse et al., 2000: 23). According to economists and policy analysts, the CAP has required substantial changes not only because financial estimates showed that the full inclusion of the CEECs to the unreformed CAP would imply unbearable strain on the EU budget15, but also because the policy itself has lost its legitimacy. It has been indicated that the distribution of benefits from the policy is unjust and that the existing regime does not foster environmentally sustainable and consumer-oriented agriculture (Josling et al.,

42

2 European agricultural integration: the state of the art 1998). As highlighted earlier, an important issue considered in agricultural economics literature was whether the adaptations to the CAP, much resembling central planning, would not hamper restructuring processes in agriculture sectors of the post-communist countries. It has been indicated that applying the present CAP in the CEECs, specifically high price supports, distortive supply management and inappropriate compensation (direct) payments might not be suitable for transforming agricultural sectors of the CEECs (cf. European Commission, 1995; Buckwell et al., 1997). Especially, the system of direct payments was indicated as not appropriate for the transition economies (cf. Fennel, 1997: 314). Already in the mid-1990s research group led by Alain Buckwell presented a far-reaching proposal for changing the CAP into a Common Agricultural and Rural Policy for Europe (CARPE), which would be primarily focused on the development of rural areas (Buckwell et al., 1997)16. The concerns about budgetary and economic consequences of the CEECs’ accession to the EU also gave rise to many detailed studies analysing different accession scenarios, starting from scenarios assuming full integration of the expected entrants to the CAP from the first day of accession, to those assuming their gradual incorporation to EU agricultural system or their temporary exclusion from the major CAP instrument, i.e. from compensatory (direct) payments (i.a.Tarditi/Marsh, 1995). The European Commission itself, responsible for submitting proposals in different EU policy areas, was also intensively studying the issues of East-West agricultural integration (European Commission, 1996; 1997a; 2002c). In contrast to studies of some western agricultural economists, the Polish agricultural economists did not find CAP instruments to have an adverse effect on the restructuring processes in agriculture. Taking into account decreasing price differentials, the Polish agricultural economists have argued that the access to the CAP instruments and in particular to direct payments is indispensable for ensuring that farmers in the 15

There have been different estimates of financial consequences of full coverage of the new member states with the CAP instruments; basically the cost of accession of seven CEECs for the CAP was estimated at about 11 – 12,3 billion ecu per year (see Rabinowicz, 2000: 224). 16 According to this concept, farmers would primarily receive payments for protecting environmental and cultural landscape in rural areas. There have appeared also other proposals like, e.g. the proposal of two of Europe’s leading agricultural economists, Allan Swinbank and Stefan Tangermann (2002), to convert the system of compensatory (direct) payments into fully transferable bonds, which would be entirely decoupled from production. For the analysis of this proposal see Wilkin (2002b: 71).

43

2 European agricultural integration: the state of the art enlarged Union compete on an equal footing. Full integration to the CAP has also been indicated as a way of providing transforming agricultural sector with much needed capital for modernization and restructuring, particularly for farms that have had great development potential (Piskorz/Plewa, 1995; Piskorz/Guba,1998; Niemczyk, 2000). At the same time, Polish agricultural economists have highlighted the importance of rural development measures, the so-called second pillar of the CAP, for improving the situation in Polish rural areas and in Polish agriculture (Wilkin, 1998b, 2000b, 2002b) Another important strand of research carried out by agricultural economists, political scientists and policy analysts concerned the analysis of political-economic and social conditions determining agricultural policies in the CEECs and in the EU. More specifically, the political implications of enlargement for agricultural policy making in the EU and in the CEECs, the existing coalitions of states, political forces and interest groups supporting and opposing agricultural integration and the changes in the CAP, as well as institutional foundations for agricultural protectionism in the CEECs and in the EU have been thoroughly studied (Rabinowicz, 2000; de Gorter/Pokrivčák, 2000; Hartell/Swinnen, 2000a, 2000b; Henning/Glauben/Wald, 2001; Henning/Krause/Struve, 2002). Regarding the candidate countries, researchers have explained their policies on integration to the EU as fundamentally determined by a preference to increase the level of support for their farm sectors. Additionally, it has been found that the importance of political factors on the domestic arenas in the CEECs favouring the increase in agricultural protection will be growing. The agriculture sector has been found most likely to gain protection since farmers’ incomes have been among the most vulnerable and the costs of protection to the rest of society have been relatively small (Hartell/Swinnen, 2000a: 203-210). At the same time, de Gortar and Pokrivcak, who were exploring the impact of the CEECs’ accession on the CAP and on the overall level of agricultural protection in the enlarged Union, concluded that agricultural support in the Union will decrease since, in political terms, lower levels of protection will be more justified and at the same time strongly backed by some of the member states, especially those which expect the deterioration of their net contribution position after the CEECs’ accession 44

2 European agricultural integration: the state of the art (Gortar/Pokrivcak, 2000: 262). In other words, the eastern enlargement of the EU has not been found as leading to a ‘restaurant table’ effect for the CAP. The budget constraints related to enlargement have been indicated as an important incentive for overcoming internal political opposition to embark on substantial CAP reform (cf. Josling, 1998; Rabinowicz, 2000). The analyses dealing with the evaluation of the political room for CAP reforms have highlighted that there is a clear qualified majority in the EU-15 for change in the CAP system, which will be hardly achievable in the Union enlarged to 25 members. Such a reform yet within the EU-15 would imply a shift to a more liberal agricultural policy and to a decrease in overall support levels for farmers. Instead, the CEECs, given their policy preference positions, would likely form a coalition vetoing a regime change in the EU agricultural policy. Overall, according to political economy analysts, enlargement to the east would exert a much stronger impact on the future CAP reforms than increased WTO restrictions (Henning/Glauben/Wald, 2001).

2.4

Summary

Summing up, contributions by sociologists, agricultural economists and political scientists offer a broad range of explanations and analytical insights regarding the political economy of European agriculture integration processes and transforming farm sectors of post-communist countries. Studies of agricultural economists have explored the relation between the transformation of the CEECs agriculture sectors to a market economy and their integration to the EU; financial and economic consequences of East –West integration in agriculture area, in particular the impact of the post-communist countries’ accession on CAP functioning and on restructuring processes in agriculture sectors of the acceding countries as well as socio-political conditions for introducing reforms in the agriculture area and in the CAP, before and after the accession of new member states. Studies of sociologists have provided important observations as regards social characteristics of the major actors of the process – farmers and rural inhabitants. They have also scrutinized the nature and durability of socio-cultural constraints that have been encumbering the road to a market economy and integration processes to the EU.

45

2 European agricultural integration: the state of the art The review of the existing literature on East-West integration in the agricultural sphere indicates that, in spite of the growing number of publications, an important gap still exists. A key shortcoming of the literature on agricultural integration between the CEECs to the EU is its failure to include analysis of the interstate negotiation process and its political-economic determinants. There are no publications that have attempted to explain the course and the outcomes of the accession negotiations in agriculture. The presented project will try to fill this gap and expand understanding of the Polish agricultural integration to the EU by analysing the determinants, the course and the outcomes of the accession negotiations in the agriculture chapter.

46

3 Theoretical and methodological framework of the study 3.1

Research perspective of the study

The present study approaches the process of the Polish agricultural sector's accession to the EU from an international political economy perspective and builds on the theories of international negotiations. International political economy is a broad research perspective which links previously separated areas of international economics and international politics. It ‘sythesizes politics and economics by means of structural analysis of the effects of states – or more properly any kind of political authority – on markets and, conversely, of market forces on states’ (Strange, 1988)17. Markets and states continuously influence each other, for that reason analysing them separately yields only a partial and distorted picture of the international system. International political economy literature continued to grow together with increasing international interdependence. Developed transnational economic and financial markets influenced the dynamics of political interactions both at the level of international relations and at the level of domestic politics. The basic aim of the international political economy is to analyse mutual interdependencies between domestic and foreign economies and polities and to explain the way political power shapes economic performance and how economic conditions influence political decision making processes both at the national and international levels (Crane/Amawi, 1997: 4-5). Being concerned with the role of wealth and power in relations among states, namely with the distribution of these two goods in the international system, international political economy contributes to a better understanding of international politics (Chalam, 1999: 6).

17

International Political Economy has its roots in the classical works of Adam Smith, John Stuart Mill and Karl Marx. At the time of Adam Smith, political economy was understood as an integral part of a broader social philosophy, and since J.S. Mill political economy started to develop towards a separate science (see Redman, 1997). During the 20 th century, the perspective of IPE was rather neglected in international research. IPE was brought back to academic research in the 1970s. Of great importance for the IPE rebirth was the publication of the special issue of International Organization in summer 1971, in which Robert Keohane and Joseph Nye focused of transnational relations and world politics (see Baldwin, 1993).

3 Theoretical and methodological framework of the study Along with the process of deepening European integration after the adoption of the Single European Act and the Treaty on the European Union, a great deal of theoretical conceptualization entered European studies. The theories on European integration have been developing within broader theoretical trends such as neorealism, neoliberalism, social constructivism or the critical school. This division matches the classical international political economy divisions based on the liberal, realist and Marxist ideologies18. Notwithstanding, some important elements of the European integration processes, such as internal bargaining between member states, negotiations with third countries or with international organisations, have not attracted adequate attention in theoretical works. The scarcity of theoretical conceptualizations of the EU as a negotiation actor in international affairs is all the more surprising because the EU has found itself in constant negotiations regarding its organisation and development fundamentally since its creation. Being continuously engaged in a number of international negotiations, the European Union is sometimes considered as the most complex negotiation system in contemporary international relations (Moravcsik, 1998; Friis, 1998). Therefore, building a coherent conceptual framework for the analysis of Polish-EU agricultural negotiations is a difficult task since there are only few works directly dealing with the accession negotiations, consisting of both theoretical and empirical perspectives (Friis/Jarosz, 1999; Friis/Murphy, 2000; Murphy, 2000). Due to the special EU negotiation system, in which every agreement with outsiders has to be preceded by internal bargaining between the member states and also due to the character of the very accession process, in which international and domestic concerns are permanently permeating, theories exploring influences of domestic politics on the outcomes reached at the international level seem to be of great value. The analysis of the bargaining over agricultural accession will be built on Putnam's two-level games approach to international negotiations (Putnam, 1988) and on the liberal theory of national preference formation developed by Andrew Moravcsik for the analysis of the evolution of European integration 18

For a review of the international political economy in the European studies and theories of European integration see e.g. Rosamond (2000).

48

3 Theoretical and methodological framework of the study (Moravcsik, 1991, 1993a, 1997, 1998). The concept of negotiations seen as a twolevel game and the theories stressing the influence of the interest groups on the policy process became an inspiration for the analyses of various instances of international bargaining, such as economic, security or territorial disputes. The Putnam model was also employed for the analyses of CAP reforms and the enlargement negotiations with Central and Eastern European countries (Paarlberg, 1997; Patterson 1997; Coleman/Tangermann, 1998, Rabinowicz, 2000)19. Because this study fundamentally deals with interstate negotiations, it is expedient to start with the general theory of negotiations, which will provide a broader context for analysis of EU accession negotiations. It will also permit the introduction of some basic theoretical concepts. The following sections present main research approaches to negotiations, basic concepts of negotiation theory and the general model of negotiation situations. Next, the conceptual framework of the study, consisting of the two integrated theories, namely the theory of twolevel games and the theory of national preference formation, is described. The final sections approach the two-level games of the accession negotiations between Poland and the EU and end with hypotheses derived from the chosen theories.

3.2

Main approaches to negotiations

Negotiations are defined as an effort undertaken by two or more parties which are in a certain conflict situation and want to arrive at a common action that seems to be better for all than the alternative courses of action (Lax/Sebenius, 1986: 11). Negotiations rely then on combining the parties' conflicting positions into a common position in order to coincide in an agreement (Zartman, 2000: 318). Individual theoretical works and empirical analyses place emphasis on various elements and dimensions of negotiation processes. International political economy studies examine different negotiation processes and negotiation environments, i.e. negotiations between states, national groups, international organisations, business corporations, individuals, employees and employers (c.f. 19

The methodological approach of the present study was decisively inspired by the article of Ewa Rabinowicz (2000) as well as by the articles of Friis and Jarosz (1999) and Friis and Murphy (2000).

49

3 Theoretical and methodological framework of the study Schelling, 1960; MacKersie/Walton, 1965; Raiffa, 1982; Rubin/Brown, 1975; Young, 1975, Lax/Sebenius, 1986, Zartmann/Rubin, 1999; Kremenyuk/Sjöstedt, 2000). Negotiations can be analyzed through examining power (structural analysis) with which parties enter negotiations. Research effort is also placed on strategies adopted by negotiators (strategic analysis), on the very negotiation process (process analysis), on behaviours of negotiators (behavioral analysis), and on the perceptions of the parties' interests (integrative analysis) (Zartman, 1991: 148). One of the main negotiation theorists, Howard Raiffa, distinguished four theoretical approaches to negotiations: symmetrically descriptive, symmetrically prescriptive, asymmetrically prescriptive/descriptive, and externally prescriptive or descriptive (Raiffa, 1982). In the symmetrically descriptive research, scholars do not prescribe how the negotiators should behave. This approach is mainly used by psychologists, sociologists, political scientists or anthropologists. The focus is on the behaviours of all the negotiators. The second, symmetrically prescriptive research, is common for mathematicians and mathematical economists, who use game theory and decision analysis to examine how actors should act in interactive negotiating situations. Advice is given symmetrically to all parties about how to play

certain

games.

In

the

third

approach



asymmetrically

prescriptive/descriptive – researchers prescribe how one of the involved parties should behave. The recommendations are based on descriptive probabilistic predictions about how other parties might behave. Externally prescriptive or descriptive research deals with the behaviour of intervenors in negotiations and indicates the ways for effective and impartial interventions in conflict situations (Raiffa, 1982: 20-25). The theory of negotiations has an essentially interdisciplinary character; it is

being

developed

by

economists,

social

psychologists,

sociologists,

mathematicians, logicians, political scientists, theorists of international relations, lawyers, or anthropologists.

For the sake of the very different research

approaches to negotiation and the extensive character of negotiation issues, negotiation theory is not developed to the same point as other theories in the

50

3 Theoretical and methodological framework of the study social sciences. There is, however, a good deal of useful conceptualization of the negotiation process.

3.2.1

Basic concepts of the negotiation theory

Each negotiation can be divided into four fundamental stages. In the first, prenegotiation stage, essential incentives for coming into contact appear. Prospective negotiators discover possible joint gains resulting from the common action. In the next stage parties prepare for negotiations by specifying the subject of negotiations and procedures. During the third stage – actual negotiations – negotiators recognize possible discrepancies and start to search for a compromise, leading to a mutual agreement. The last stage that ends the negotiation process includes either signing a negotiated agreement or rejecting it. The actual negotiations have iterative character – individual actions are repeated over again so that the negotiators could get additional information and identify possible tradeoffs between conflict areas (Mesjasz, 2000: 43). There are two-party – one/many issues or many-party – one/many issues negotiations. The fundamental difference between two-party and many-party negotiations is that the latter enable interplay among shifting coalitions (Raiffa, 1982: 255). In most common cases, two-party – many issues negotiations, four types of bargaining are distinguished. In the first case, negotiators bargain over one issue that synthesises the remaining ones. Negotiators can also engage in simple bargaining concerning many issues, but these bargains are basically detached from one another. The third form of bargaining, logrolling, is based on tradeoffs between the issues under negotiation. The parties reach an agreement by quid pro quo procedure. The most common case in negotiation is mixed bargaining, i.e. bargaining that mixes the second and third forms. Tradeoffs concern only one set of the negotiated issues and the remaining problems are negotiated in a simple mode (Schelling, 1960; Mesjasz, 2000: 46-48).

51

3 Theoretical and methodological framework of the study Tradeoffs are especially common in economic negotiations – here the exchange of offers and requests is facilitated because economic stakes, unlike political or security one, can easily be expressed quantitatively in exact numbers (Kremenyuk/Sjöstedt/Zartman, 2000: 11). The common feature of negotiation situations is that the negotiators tend to strategically misrepresent their value tradeoffs, i.e. to exaggerate the importance of what one is giving up and to minimize the importance of what one gets in return (Raiffa, 1982)20.

3.2.2

General model of negotiation situation

Negotiation theorists employ many different simplifying models for analysing negotiation situation. These general models of negotiations are usually used by game theorists who study decision making processes in conflict situations and aim at providing an optimum strategy to deal with the opponent that has a strategy of his own21. In most general models both ‘outcome’ and negotiator ‘utilities’ are presented (Raiffa: 1982; Sebenius, 1992; Mesjasz, 2000) (Figure 3.1). The model assumes that both negotiating parties can asses their ‘underlying interests in different possible settlements’ and can compare them to the value of the best no-agreement alternative (Sebenius, 1992: 337). The interests of the involved parties can be abstracted into utility functions. For each party a set of possible agreements can be then determined. Point 0 describes the initial situation without an agreement. The reference point and utopian point are used for seeking solutions in real negotiation situations (Mesjasz, 2000: 50).

20

Strategic misrepresentation has a deeper psychological justification. Psychologists pointed at the so-called endowment effect by which people value something they possess more than they value an equivalent good that so far is not in their possession. At the same time, people are loss averse, that is they hate to lose more than they love to win. Decision makers are concerned about the effects of possible tradeoffs and concessions in negotiations, fearing that the effects of even small losses which may result from logrolling will be greater than the effects of equivalent size gains. See: Downs and Rocke (1995, 16-17). 21 Game theory was initiated by J. von Neumann and O. Morgenstern, who in Theory of Games and Economic Behaviour (1944) presented mathematical theory for solving two-person, zero-sum games as well as the classical approach to n-person games. The theory was further developed by J.F. Nash, J.C. Harsanayi and R. Selten who in 1994 received the Nobel Prize for their contributions. For a review of game theory see e.g. Morrow (1994).

52

3 Theoretical and methodological framework of the study

Figure 3.1 The general model of negotiation situation

U2

U2a

●U

Negotiator B



- Ideal point Pareto frontier (set of effective outcomes)

R

Zone of possible agreement

0 Negotiator A

U1a

U1

0 - lack of agreement (status quo); U1 - utility of Negotiator A; U2- utility of Negotiator B; U1a - the aspiration level of Negotiator A; U 2a - the aspiration level of Negotiator B; R - reference point; U - ideal point (utopian solution) Source: Mesjasz (2000: 49).

The zone of possible agreement (ZOPA) includes all negotiation solutions that fulfil demands of individual rationality. The ZOPA (negotiation set) is bounded by players’ utility axes and the frontier of effective outcomes. Specifically, the negotiation set is determined by each bargainer’s reservation level (security level), i.e. the threshold value that he or she needs, his or her aspiration level (the best overall outcome as represented by U1a for Negotiator A, and U2a for Negotiator B), and the Pareto Optimal Frontier. The Pareto frontier represents ‘the evaluations of the set of those possible agreements on the issues which could not be improved on from the standpoint of either party without harming the other’ (Sebenius, 1992: 337). The frontier of these achievable joint evaluations from which no joint gains are possible can only be theoretically approached. Neither side of negotiation knows its location. Additionally, the zone of possible agreement in negotiation can be differently perceived by each party. Even if a Pareto optimal outcome is indicated, the parties of negotiation may not arrive at that point. 53

3 Theoretical and methodological framework of the study

3.2.3

Power of alternatives

Negotiators usually seek to increase their bargaining power. Negotiation theory identifies power with alternatives, namely it suggests that bargaining power is shaped by parties’ alternatives to a negotiated agreement (Lax/Sebenius, 1985). The better the alternatives, the greater the chance that negotiator will arrive at better results. Every negotiator before entering negotiations evaluates his best alternative to a negotiated agreement (BATNA). If he wants to increase his bargaining power he usually tries to improve his own alternative and weaken alternatives of the other party. Unattractive alternatives make the other party more willing to offer better outcomes to his opponent. Consequently more negotiation effort is spent on playing with alternatives.

3.2.4

Distributive and Integrative Bargaining

Negotiations can proceed in a cooperative or/and competitive way. R. Walton and R. McKersie (1965) presented general division into distributive bargaining, in which confrontation and win-lose encounters predominate and integrative bargaining, in which parties want to solve problems and increase the joint gains (win-win situation). The first type can be illustrated as a fixed sum game or a zero-sum game, and the latter as a positive sum game or variable sum game with potentially mutual benefits. Competitive and cooperative bargaining situations are also described as claiming and creating value (Lax/Sebenius, 1986). Value creating bargaining proceeds smoothly and results in ‘expanding the pie’, whereas value claiming is understood as the adversial process of ‘dividing the pie’. Mutually excessive value claiming can lead to deadlock and a Pareto-inferior outcome. Lax and Sebenius argue that each negotiation includes both cooperative (creating value) and competitive (claiming value) elements, which are inextricably entwined in the negotiation situation – having created new value, negotiators still must divide it (Lax/Sebenius, 1986).

54

3 Theoretical and methodological framework of the study 3.2.5

The Negotiator’s Dilemma

The basic tension between creating and claiming value results in a dilemma for the negotiator. The Negotiator’s Dilemma, also known as the Toughness Dilemma, states that the tougher negotiators behave the more likely they reach a favourable agreement but, at the same, time such behaviour increases the risk of an overall breakdown in negotiations. On the other hand, the softer negotiators behave the easier an agreement is to reach but more difficult it is to get a larger part of the negotiated outcome. The Negotiator’s Dilemma is very often described in terms of the famous Prisoner’s Dilemma Game or similar Chicken Dilemma Game22. The essence of the dilemma concerns possible courses of action (cooperation versus defection) and their consequences for players. If both parties decide to cooperate then they both get good results; if only one party cooperates and the other defects then the cooperating party ends with a very bad outcome and the competing party gets a great outcome. If both parties compete they arrive at rather poor results. Each player has a temptation to compete (defect) since such a strategy, provided of course, that the other player does not pursue the same strategy, brings great outcome. However, each player is uncertain as to the other side’s strategy and faces a dilemma as to his choice23. 3.3 3.3.1

Theoretical framework of the study Negotiations as a two-level game

International negotiations constitute a fundamental research area in the negotiation theory. They are considered as the basic instrument for the development of relations between states and non-state actors. The need to manage ‘policy 22

The prisoner’s dilemma is very common in analyses of social interactions. The term derives from the story used to describe the game between the police and two individuals who have to decide as to their strategies of behaviour. The theory of international negotiations uses also "game of Chicken" to describe situation in which one party, believing that the other one is compelled to drive a hard bargain, prefers to concede more (“chicken out”) in order to salvage some agreement (Mayer, 1992: 810-811). 23 Conflict situations in negotiation processes were scrutinised by Robert Axelrod who evaluated a number of strategies for dealing with cooperative and competitive strategies. Axelrod’s contribution suggests that a tit-for-tat strategy, when applied to iterated rounds of the dilemma, yields the best overall outcome (Axelrod, 1984). The other possibilities to cope with the inherent tension between claiming and creating value are “principled negotiation”, “the single negotiating text” or “the post-settlement settlement” (see Sebenius, 1992: 336).

55

3 Theoretical and methodological framework of the study externalities’ is a direct incentive to enter negotiations in the reality of international relations. Externalities occur when the realization of important objectives of domestic policies of one country becomes crucially dependent on the policies adopted by other countries. In order to attain domestically important aims, improve the access to relevant information and reduce transaction costs, states decide to coordinate their policies and create international regimes (Keohane, 1984). The most inspiring model for the analysis of inter-state negotiations was proposed by Robert Putnam who in 1988 published his seminal study on two-level games (Putnam, 1988). The original idea of Robert Putnam was further developed by many theoretical as well as empirically oriented scholars (Evans, 1993; Iida, 1993, 1996; Mayer, 1992; Mo, 1994, 1995; Milner/Rosendorf, 1997; Milner, 1997; Moravcsik 1993a, 1993b). The core idea of Putnam's theory of two-level games is that the politics of many international negotiations can be usefully perceived as a game at two levels: simultaneously at the international level (Level I) and at the domestic level (Level II) (Putnam, 1988: 434). In the first stage a negotiating proposal is prepared through the domestic bargaining process and then, at the Level I, national offers are subject to an inter-governmental game. In the two-level games model interacting states are non-unitary actors; that is, they are composed of domestic factions such as central decision makers, legislature, and domestic groups which negotiate internally over what positions will be taken by their party in the external negotiation (Milner, 1997: 4). Therefore, the fundamental actors designated by the two-level game model are national governments interacting with various subnational actors such as specific interests groups, political parties, ethnic or religious groups, bureaucratic agencies or even influential individuals (Moravcsik, 1993: 41). Theoretically crucial in the model is the ratification process which links Level I and Level II games. Ratification takes place both at the domestic level and at the international level. The negotiator has to search for outcomes that would be acceptable to other governments and to enough domestic constituents to ratify the 56

3 Theoretical and methodological framework of the study agreement. The two-level-games school assumes that international bargaining proceeds within the framework of specified win-sets24 that consist of all possible outcomes being Pareto-improvements on the no-agreement alternative, i.e. are better for each potential party than the non-cooperative alternatives (Putnam, 1988: 437). The chance for ratification depends on win-set size. According to Putnam, the size of the possible bargaining set is influenced by three fundamental factors: -

Level II preferences and coalitions,

-

Level II institutions

-

and Level I negotiators’ strategies (Putnam, 1988: 442).

The position of a government in international negotiations is first determined by the interests of all relevant domestic groups which calculate the relative costs and benefits of negotiated alternatives to the status quo and specify their stance with respect to a negotiated international bargain. The domestic institutions and the power structure of domestic polity essentially influence the course of international bargaining – they primarily determine whose preferences and what coalitions are represented in international bargaining and, secondly, they are decisive for ratification of international agreements. Equally important for the course and outcomes of negotiations are preferences of negotiators and their behaviours both in domestic and international arenas. A statesman25 can behave like an agent, like a dove or like a hawk. In the first case a statesman’s preferences reflect the preferences of the median voter. In the second case a statesman’s acceptability set goes beyond the acceptability set of a domestic constituency, and comes closer to the acceptability set of a foreign country. Statesman-as-hawk has preferences opposed to preferences of his domestic constituency and adopts a very restrictive approach to negotiations, rejecting agreements which could have been ratified at the domestic level. When the win-set (acceptability set) is very small, the risk that negotiations will break down is big. The two-level-game school makes an

24

Win-set is essentially the same as bargaining set, acceptability set, or ZOPA (Raiffa, 1982). There are several terms to describe negotiator in the two-level-games school. The most often are Statesman, Chief of Government, or Chief Negotiator. 25

57

3 Theoretical and methodological framework of the study important distinction between homogeneous and heterogeneous negotiation objects. A larger win set and thus a greater chance for ratification appears in a country where a heterogeneous set of domestic interests predominates. When negotiation objects are nationally homogenous and additionally domestic groups have only little to win, a statesman enters negotiation with a very small domestic acceptability set. Domestically homogenous issues fundamentally curtail possibilities for making tradeoffs between the parties involved in negotiation. A small win set has pivotal consequences for conducting international negotiation. The theorists of the two-level games school claim that a small win-set that restricts the room for manoeuvres can be a bargaining advantage for a negotiator. Putnam follows Thomas Schelling’s (Schelling, 1960) observations and points out that bargaining strength can derive from a position of weakness26. In specific situations, tied hands at the domestic level can be useful for extracting more beneficial agreements from foreign countries. Specific internal constraints such as opposition of certain domestic groups or characteristics of a domestic institutional system often strengthen a state’s bargaining position in international negotiations. The more the negotiated issue triggers off political opposition at the domestic arena, the greater government bargaining power at the international level and therefore the greater possibility of striking a favourable agreement. On the other hand, governments which are firmly committed to a single policy and act without any significant social constraints have a relatively less favourable position in international negotiations and can not use the ratification argument (Putnam, 1988: 445). The concept of two-level games implies that a statesman, being engaged at both levels, can use domestic policies to affect the course of international bargaining, and similarly external bargaining can be used as a means to achieve political goals in the domestic arena. Both negotiating parties take up efforts to improve outcomes by favourably affecting the zone of possible agreement. The

26

Schelling presented inspiring ideas about ‘bargaining power' and indicated that if this term implies that it is an advantage to be more skilled in debate, or to have more financial resources, more physical strength, more military potency, or more ability to withstand losses, then the term does a disservice, since ‘(...) The power of a negotiator often rests on a manifest inability to make concessions and meet demands’ (Schelling, 1960, as quoted in Putnam, 1988: 440).

58

3 Theoretical and methodological framework of the study following diagram presents possible double-edged strategies commonly employed in international negotiations.

Figure 3.2 Double-edged bargaining strategies International constraint

Statesman A

Statesman B

Domestic constraint

Chief of Government Collusion Strategies to alter domestic constraints abroad: Targeting Reverberation Strategies to alter domestic constraints: a) Tying hands b) Cutting slack

Actions directed at a foreign government Domestic Constituency A

Domestic Constituency B Transnational Alliance

Source: Moravcsik (1993b: 32).

Negotiating governments usually seek to influence one another’s win-sets. Depending on preferences and pursued goals, a statesman may wish to change the size of his own win-set or the size of foreign country’s win-set. Negotiators have the power to shape the ways in which decisions at the domestic level are being taken. First, chiefs of government influence specific institutional arrangements adopted in order to accommodate a prospective negotiation process. Furthermore, they can manipulate the process by linking negotiated issues or by sequencing information. In certain circumstances, they may want to constrict a domestic winset, e.g. by introducing rough domestic ratification procedures or by producing some new or even factitious tensions in the domestic arena. In most cases, however, governments seeking an international deal face natural domestic

59

3 Theoretical and methodological framework of the study constraints and opposition from some domestic groups, including of course opposing political parties.

3.3.1.1 Tying hands strategy Specific societal actors who behave like hawks and additionally enjoy a disproportionate weight in policy considerations may represent the main hindrance for reaching an international agreement. In such negotiation situations, negotiators argue that they can not give in a particular issue area of negotiation since it will not go through the process of domestic ratification27. In effect the ‘tied hands’ strategy and the threats of involuntary defection from an international agreement due to domestic resistance are commonly present in international negotiation. Taking into account advantageous effects of the 'tied hands', the two-level game school suggests that a negotiator may actually prefer to impose a domestic constraint on himself by granting a veto power to his domestic constituencies. It appears to be especially feasible when interests of a negotiator are aligned with that of his domestic constituencies and when the foreign country has complete information on the preferences of the very negotiator (Mo, 1995). Under different circumstances, the constraints imposed by domestic institutions could prove a bargaining liability. The two-level game theorists also offer interesting hypotheses concerning the effectiveness of threats used in international negotiation. The credibility of a threat depends primarily on the assurance that it would be executed, i.e. the opposing statesman must be convinced that the domestic groups of a foreign country would eventually ratify the threat. Furthermore, the threats of involuntary defection or other domestic bargaining chips seem to be more effective when delivered by statesman-as-dove or statesman-as-agent. The threats delivered by hawks turned out to be less credible (Moravcsik, 1993b: 31).

27

The two-level game model distinguishes between involuntary defection, in which domestic constituencies reject an agreement supported by a government, and voluntary defection, in which government decides to withdraw from an agreement, without taking account of domestic support or opposition.

60

3 Theoretical and methodological framework of the study 3.3.1.2 Cutting slack strategy A negotiator can also act in an opposite direction, trying to expand rather than limit the size of the win-set. This strategy is called ‘Cutting Slack’ and is commonly used in a situation in which a negotiated agreement pursued by a government is seriously threatened by domestic veto. There are different tactics that permit one to enlarge the size of the win-set and to conclude an agreement at the international Level. By using special institutional arrangements or by introducing new internal reforms, including economic or administrative spheres, a government can undermine the power of special interest groups, which militate against an international agreement. This tactic requires time and is politically very risky. A more common and, at the same time, safer device used in two-level games includes offering side-payments to some relevant domestic actors or presenting negotiated issues in different colours (redefinition of negotiation). Additionally a statesman may manipulate public perceptions of the negotiated agreement by selectively releasing information. Decision makers pursuing domestic ratification for a negotiated international deal usually engage in compensation politics either making direct monetary payments to some groups or preparing some material concessions on other issues (Mayer, 1992; Friman, 1993). Negotiators very often aim at creating synergistic issue linkage between Level I and Level II and prepare specific package deals that have a chance for domestic acceptance28. This strategy does not change the fundamental preferences of domestic groups, but rather creates new policy options which were previously beyond domestic control (Putnam, 1998: 447). In situations of synergistic issue linkages, the costs of no agreement for domestic constituencies substantially increase and consequently an international deal has better chances for ratification.

3.3.1.3 Strategies addressed at the acceptability set of the negotiating partner The interactions between domestic and international environments are not limited only to relations between central decision-makers of the given country and their constituencies but also proceed crosswise engaging foreign governments in the 28

The positive effects of mutually advantageous issue linkage in international negotiations were already advanced by Tollison and Willet (1979).

61

3 Theoretical and methodological framework of the study domestic dynamics of their adversaries. If, in the case of strategies directed to change a negotiator’s own acceptability set, the two kinds of actions are possible, namely expanding or limiting the size of a win-set, in the case of actions directed at foreign country’s Level II, a negotiator is primarily concerned with enlarging the acceptability-set of his opponent. As was already mentioned, the key strategy for expanding win-set size relies on increasing the costs of non-agreement for relevant domestic groups of a foreign country. Worsening the non-agreement alternatives for others can improve the likely attractiveness of an agreement for one’s own side. Governments for which the negotiated international agreement actually constitutes the best alternative relative to their unilateral and coalitional alternatives, tend to offer greater compromises in negotiations in order to hammer out the final agreement (Moravcsik, 1998: 8). A negotiator can also alter domestic constraints in a foreign country by targeting specific benefits to particularly powerful domestic constituencies. A second tactic is reverberation, which occurs between the countries which already have a close relation. Here a negotiator attempts to reach domestic constituencies of a foreign country by persuasion, what is possible only in specific cases of international negotiation, mainly in negotiations on economic issues. Another double-edged strategy builds on interactions between chief negotiators. The two-level game model suggests that a kind of collusion between chiefs of government is possible. ‘Chief of government collusion’ takes place when a statesman of a foreign country aims at limiting domestic constraints that impede his actions. Then a statesman of the other country undertakes special actions to strengthen the position and prestige of the opposing statesman vis-à-vis his domestic constituencies. Putnam's model implies that not only governments but also social actors engage in the double-edged actions. Domestic constituencies may influence both their government and the government of a foreign country. Domestic groups can also decide to cooperate with their counterparts in a foreign country and create a kind of transnational or transgovernmental alliances when their preferences and preferences of statesmen diverge i.e. when statesmen are hawks. These social

62

3 Theoretical and methodological framework of the study alliances are meant to reduce the negative effects of actions by statesmen who oppose domestically supported international accords (Moravcsik, 1993b: 29).

3.3.2

The theory of national preference formation

As the two-level-games approach suggests, domestic politics is crucial to explaining

a government's behaviour in international negotiations. The

configuration of domestically determined national preferences influences the ‘bargaining space’ of potentially ratifiable agreements. However, the two-level model, although it emphasises the importance of domestic politics for international cooperation, does not explain how interests are formulated and how they influence policy. In order to analyse the international game, detailed examinations of domestic politics and policy preferences of relevant domestic groups are necessary. It seems to be analytically proper to integrate Putnam's model of two-level games with broader social theory that would explain the dynamics of domestic political processes. For the analysis of domestic influences, the explanatory concepts of the liberal theory of national preference formation seem to be of great value. The theory of national preference formation stresses the traditional concepts of national interest and power. It was brought back to research on international negotiations by Andrew Moravcsik who adopted it for the analysis of the Single European Act's origins (Moravcsik, 1991)29. Moravcsik represents the school of liberal intergovernmentalism for which the formation of state preferences and their interaction is at the core of research interest30. National preferences are the key independent variable in every negotiation that involves national governments. Moravcsik argues that the evolution of the European Communities and later of the European Union can be best explained by using two theories sequentially, namely, the theory of international bargaining and

29

However, already in 1983 Simon Bulmer applied the domestic politics matters approach to the analysis of political processes at the European Community level (see Rosamond, 2000). 30 It is worth noting that this approach has been in opposition to the approach of structural realists, for whom the foreign policy of a country has been primarily determined by the perceptions of the structure of power relations in the international system (see e.g. Waltz, 1979).

63

3 Theoretical and methodological framework of the study the theory of national preference formation31. The latter, informed by rationalchoice theory, attempts to explore from where interests and state preferences derive. The two fundamental assumptions of the theory build on the liberal paradigm of the social system: Assumption 1. The Primacy of Societal Actors: The fundamental actors in politics are individuals and groups, which are assumed to be rational and risk-averse. In the liberal view, individuals and groups have different preferences and different identities. They organize exchange and collective action to promote differentiated interests under constraints imposed by material scarcity, conflicting values, and variations in societal influence.

Assumption 2. Representation and State Preferences: All political institutions such as governments, political parties or interest groups represent some subset of domestic society. State officials derive national preferences for international negotiations from the constellation of these domestic interests (Moravcsik, 1997: 37-38). As Moravcsik put it: (...) groups articulate preferences; governments aggregate them. For liberals, the relationship between society and the government is assumed to be one of principal-agent; societal principals delegate power to (or otherwise constrain) governmental agents. The primary interests of governments is to maintain themselves in office; in democratic societies, this requires the support of a coalition of domestic voters, parties, interest groups and bureaucracies, whose views are transmitted, directly or indirectly, through domestic institutions and practices of political representation. Through this process emerges the set of national interests or goals that states bring to international negotiations (Moravcisk, 1991: 483).

31

According to Moravcsik, intergovernmental bargains, conditioned by internal preferences of the key member states, notably of Germany, France and Great Britain, are more credible explanations of the developments of European integration than the explanations delivered by partisans of supranational theories. The crucial elements of Moravcsik's theory on European integration are intergovernmentalism, lowest-common-denominator bargaining, and the protection of sovereignty. In his recent works Moravcsik has also assigned an important role to institutional choice. In his view such supranational institutions of the European Union as the Commission or the European Parliament can facilitate positive sum bargaining (Moravcsik: 1993a, 1998). For a review and critique of Moravcsik’s theory see e.g. Smith (2000: 45-47).

64

3 Theoretical and methodological framework of the study Therefore the policy of each government32 is essentially constrained by the interests and power of individuals and groups who constantly pressure the central decision makers to pursue policies consistent with their preferences. Governments, as the public choice theory suggests, respond to these pressures in such a way as to maximise the probability of re-election. Moravcsik defines national preferences as ‘a set of underlying national objectives independent of any particular international negotiation to expand exports, to enhance security vis-à-vis a particular threat, or to realize some ideational goal’ (Moravcsik, 1998: 20). The term distinguishes from national ‘strategies’, ‘tactics’ and ‘policies’, that are submitted by national governments during concrete interstate bargaining processes. According to Moravcsik, national preferences are determined by the endogenous dynamics of domestic polity and they are prior to strategic interaction at the international level (Moravcsik, 1998: 24)33. Generally, the analysis of national preferences requires two things: to present the structure of the economy and to delineate the structure of the political system. Fundamental variables from which the formation of national preferences can be explained are interests of domestic actors, domestic institutions which determine power relations between the groups and the distribution of information (Milner, 1997: 11). The process of national preference formation consists of several stages. The theory of national preference formation is informed by public choice. Actors in a pluralistic world – individuals and groups – are considered rational utility maximisers that interact on the basis of self-interest and risk aversion (Moravcik, 1993: 7-13). They are equipped with information about the environment and their own interests. During the first stage of preference 32

The ‘domestic politics matters school’ stresses that even non-democratic regimes take into account domestic political economy considerations. As Helen Milner notes, ‘States controlled by leaders like Hitler, Stalin, and Franco are not pluralist democracies, but history shows that even within such allegedly unitary, hierarchical states dictators were unable to dictate: domestic groups with varying preferences competed for influence over policy and the dictators depended on them to various extents in making policy’ (Milner,1997:13). 33 Moravcsik argues that “... it is essential— particularly given the inconsistency of common usage—to avoid conceptual confusion by keeping state ‘preferences’ distinct from national ‘strategies’, ‘tactics’, and ‘policies’, that is, the particular transient bargaining positions, negotiating demands, or policy goals that constitute the everyday currency of foreign policy” (Moravcsik, 1997:519).

65

3 Theoretical and methodological framework of the study formation, individuals and groups, having their utility-maximising objectives, assess alternative courses of actions and choose the one which maximises the expected utility34. At this stage of national preference formation, the key role falls to domestic institutions and information. Institutions define the ways of sharing power between societal groups in the domestic polity. It is also important how the information on the negotiated issues is distributed in the domestic arena. Some groups may enjoy better access to relevant information and some may have only limited or incomplete information on the issues that are to be decided either domestically or internationally. In the next phase, the preferences of domestic groups enter the political market and start the quest for political influence. This process depends on dominant patterns of political interactions between a state’s officials and society. In effect, national preferences on a specific matter reflect the interests of that social group/groups, which exert the greatest influence on the state apparatus. Governments enter the international bargaining game with specified national objectives and act rationally or instrumentally in order to reach their optimum solution (Moravcsik, 1998: 18). At this stage a space for playing two-level games emerges.

3.3.3

An integrated approach – the two-level games and national preferences

The two-level game model and the theory of national preference formation can usefully be integrated into one explanatory framework. The theory of national preference formation actually supplements the two-level game model by expanding Putnam's propositions concerning game dynamics at the Level II, notably his insights as to the main determinants of the size of a domestic win-set. The integration also permits one to achieve theoretical rigour in the analysis, since

34

There are different approaches to the rationality of individuals and groups in society. There are proponents of strong rationality, who argue that actors have access to extensive information on the environment and their own interests. They also have good computational skills in assessing the expected utility of alternative courses of actions. Other approaches stress that individuals and groups seem to be ‘boundedly rational’ – some imperfections in information about one’s interests and the environment, as well as limited computational skills are very likely (see Simon, 1972). Moravcsik’s methodology is based on a rational-actor paradigm and follows a strong rationality argument.

66

3 Theoretical and methodological framework of the study the two-level game model as such does not hold the attributes of social theory. The theoretical framework of the work can be illustrated as follows:

Figure 3.3 The basic explanatory framework of the study international supply of outcomes INTERNATIONAL BARGAINING (Level I)

differences in state preferences and their configuration institutional framework of negotiations bargaining power of negotiators NATIONAL PREFRENCES

OUTCOMES DOMESTIC BARGAINING (Level II)

configuration of domestic interests pressures from domestic societal actors as represented in political institutions

international demand for outcomes Source: Author’s model on the basis of Putnam (1988) and Moravcsik (1991: 482).

Accession negotiations between Poland and the EU will be then conceptualized as a game played both in domestic and international arenas35. The 35

It is worth noting that, according to some researchers, the two-level game approach is too simplistic to analyse the EU and its policies. They often apply in their analyses a third level – either a supranational one that reflects the institutional structure of the EU and increasing role of the EU supranational institutions or the level of world politics. In the latter case Putnam’s Level I relates to developments in the international system, e.g. international negotiations on world trade liberalisation, Level II covers the relations between EU member states, Level III - domestic politics in member states (cf. Patterson, 1997; Schwaag Serger, 2001). Other researchers have differentiated five levels, apart from international Level I and domestic Level II, Level III: institutionalized intergovernmental exchange (EU member state - EU Member State), Level IV: EU non member government exchange, Level V: subnational exchange (national polity-national polity) (Smith/Ray, 1993). This approach reflects the observation that the number of relevant actors in the EU, engaged in games at different levels, has significantly expanded. Therefore, it is more proper to speak of multi-level governance in the EU. However, the theoretical approach chosen by the author of the present study does not refer to the EU and its policies as such or to day-to-day negotiations between the incumbents but to the single case of the grand bargain - the EU-Polish accession negotiations. It is then tailored to the specified research questions. Furthermore, the approach of liberal intergovernmentalism, as developed by Moravcsik, allows for the impact of the changing institutional structure of the EU on policy outcomes. At the same time, it makes the analysis more tractable.

67

3 Theoretical and methodological framework of the study analysis will follow a symmetrically descriptive approach, concentrating on behaviours and strategies of both negotiating parties. Domestic bargaining processes are treated as a fundamental departure point for analysing intergovernmental interactions. National preferences shaped by endogenous dynamics of domestic polity are a key variable for explaining international demand for outcomes. According to the integrated model, three analytical steps need to be made in order to explain the process and outcomes of negotiations. -

Identification of all relevant actors in negotiations

-

Specification of domestic politics and domestic interests (Level II)

-

Specification of the nature and dynamics of the international game (Level I)

First main actors of Level I and Level II, that is actors of international as well as domestic bargaining processes, need to be identified. Key Level I actors are chief negotiators, which are also Level II players with their own interests. Methodologically crucial is the second step, namely specification of domestic politics and identification of the interests of all relevant Level II actors (societal groups, specific interests groups, legislatures, and government officials, including chief negotiators) as regards matters related to the negotiated issues. The analysis of Level II developments also must include analysis of the structure of power relations, that is analysis of domestic political institutions governing the rules of the internal game between decision-makers and constituencies. After examining the domestic institutional settings and national preferences, the actual international negotiations can be approached. According to the theoretical framework, of great importance here are the nature of the negotiating environment, the institutional structure within which the negotiations proceed, and the bargaining power of negotiators. The configuration and intensity of state preferences decisively determine the zone of possible agreement between the parties, possible tradeoffs and alternatives. At this stage, negotiators aiming at their optimum solutions bring into play different double-edged strategies, insightfully described by Robert Putnam. 68

3 Theoretical and methodological framework of the study The key independent variables chosen to explain the negotiations are then both of a domestic and international nature. These are (1) the differences in actors’ interests and preferences; (2) the institutional framework of the negotiations and (3) the variations in bargaining power of the major players. Concerning the first explanatory factor, the study will follow the operational definition applied by Moravcsik in the study of national preferences, as presented above. The potential differences in the preferences of negotiating actors will be analysed by comparing their positions as regards individual elements of the negotiated agricultural chapter. By the institutional framework of the accession negotiation, this study means both the formal procedures and the nature of the bargaining game – the role of individual institutions: state, social, international and supranational, potential issue linkages, possible coalitions. The third factor relates to the bargaining power of negotiators that will be understood as the ability of actors to set the agenda for negotiations, to change the perceptions of the other party as to the negotiated issues and to achieve goals in the presence of opposition by the other party. The following chapters will thoroughly analyse all relevant factors considered crucial for the explanation of the course and outcomes of the accession negotiations in the agricultural area. However, some general observations concerning the specificity of the EU accession negotiations will be presented in the following section and will serve as basic guidelines for deriving theoretically grounded hypotheses concerning the agricultural negotiations between Poland and the EU.

3.4

3.4.1

Approaching the two-level games in the accession negotiations between Poland and the EU Specificity of the EU accession negotiations

It is commonly agreed that negotiations for membership in the EC/EU are a special example of international negotiations. They essentially differ from the majority of negotiations in international relations, including also other

69

3 Theoretical and methodological framework of the study negotiations in which the EU participates. Negotiations for EU accession are extremely complex negotiations, since they cover all fundamental areas that determine the functioning of a state and an economy. The country applying for membership in the EU is obliged to fully adopt, implement and enforce the Union's acquis communautaire. For that reason, negotiations for EU membership are sometimes described as ‘entrance examinations’ (Nicolaides, 1998a). The complex character of this negotiation results from the tremendous integration output produced during the decades of the European Communities' developments. None of the integration groups present in the contemporary international system has reached such a high level of integration as the EU. The Union negotiates agreements of very different scopes and contents. The most basic and commonly used instruments in negotiations with third countries are trade, cooperation and association agreements. Unlike these forms, in the accession negotiations the negotiating parties decide on long-term cooperation and on functioning in one common organization. Therefore, in the accession negotiations, more than in the case of trade or association bargains, the governments involved have to negotiate with joint gains in mind, not merely their own individual objectives. The negotiating parties are forced to move away somewhat from their preferred positions in order to ensure welfare for the whole Union. Graham Avery, the European Commission official, described the enlargement negotiations not as a simple negotiations about future relations between ‘us and them’, but rather about relations between the ‘future us’ (Avery, 1995)36. The accession negotiations between a candidate country and the fifteen member states of the EU proceed parallel to many other negotiations which decisively influence the course and outcomes of the former. First, each member state prepares itself for the accession negotiations by conducting talks at home. Furthermore, there are internal negotiations among the fifteen member states which have to agree on the conditions of admission of a new member. These negotiations require a great many compromises among the national governments and are usually time-consuming. The internal negotiations engage both national

70

3 Theoretical and methodological framework of the study governments as represented in the Council of the European Union and other Community institutions, notably the European Commission and the European Parliament. Similarly, internal negotiations take place in the candidate countries, in which central decision makers negotiate with all relevant domestic groups over the position which is to be submitted during the negotiations with the EU. The candidates and the EU also conduct other negotiations that form part of the preaccession strategy, such as negotiations on agricultural trade liberalisation. Finally, the accession negotiations are influenced by external negotiations, in which the candidates as well as the member states take part (e.g. negotiations of the World Trade Organization). Furthermore, the accession negotiations are conducted in a non-coercive situation; the actors bargain in conditions of complete information over their preferences and the procedures of the negotiations and take decisions rather by unanimity than by majority voting. Additionally, specific institutional setting of the accession negotiations – the presence of supranational institutions, the longterm framework of negotiations within the EU and a plethora of possibilities for issue linkages – lowers transaction costs of bargaining (Moravcsik, 1998). Most negotiation in international affairs usually proceeds in less defined conditions and in the absence of supranational authority. Consequently, negotiators in international bargains often face collective action problems and end negotiations with Pareto-inferior outcomes. Negotiations for membership in the EU, however, are highly structured by rules and procedures that essentially reduce the classical problem of uncertainty in relations between states and that diminish the incentives to defect. Additionally, the institutional design of the accession negotiations includes a kind of requirement of agreement, which is rather rare in international negotiations. It can be argued that the decision about signing the final agreement is taken even before the actual negotiations start. This results from the fact that both sides participating in the negotiations share common values and goals. All the previous EC/EU enlargements indicate that after the political decision on enlargement had been already taken, the incumbents and the candidate countries always reached the stage of signing the Accession Treaty which 36

As quoted in Friis and Jarosz (1999).

71

3 Theoretical and methodological framework of the study however could have been rejected during the ratification procedure as it was in the case of the two Norwegian public referenda in 1972 and in 1994.

3.4.2

Problems of asymmetry

The accession negotiations are characterised by substantial asymmetry of the two parties involved. The candidates seeking EU membership by definition are in a worse negotiating position. Entry to the organization is usually a key objective of a given country’s foreign policy. Candidates are poorly equipped with alternatives to the negotiated agreement; especially the applicants from Central and Eastern Europe hardly have any alternative (no BATNA situation) and therefore can not use threats in negotiations. Integration to the European Union has been commonly regarded as integral to post-communist countries’ national interests. Moreover, a candidate country, being in a classical outsider’s position, has to negotiate highly complicated issues of the acquis communautaire, which is changing even during the negotiations. Consequently, a candidate country has far less overview of the negotiated issues and must negotiate them in front of the fifteen EU member states and the European Commission. Naturally, the EU member states are more eager to share information with partners with which they cooperate every day than with the outsiders. At the same time, the EU prefers to negotiate with a group of countries, which are characterised by similar levels of economic development. Although the negotiations between each of the candidates and the EU are conducted bilaterally, they are in essence multilateral, i.e. progress and outcomes of negotiations with one country are highly influenced by the developments in negotiations with the remaining candidates (Nicolaides, 1998b). Furthermore the multilateral context of the accession negotiations appears to be a bargaining advantage for the EU’s negotiators, who tend to use the agreements hammered out with one candidate as a battering ram in order to persuade resistant candidates into signing a similar negotiation deal (Friis/Farosz, 1999). The EU introduces a great deal of competition into the accession negotiations, the candidate countries are subject to many rankings and they are 72

3 Theoretical and methodological framework of the study constantly examined regarding their ability to adapt to the acquis communautaire. The EU evaluation system has important implications for accession negotiations. Not only do the candidate countries want to have the best overall grades given by the EU’s examiners, they also welcome inferior performance of other candidates. In effect, the candidate countries compete rather than cooperate. Possible coordination, which would weaken the visible asymmetry of the accession negotiations, is notably hampered by the collective action problem the candidate countries face during the whole process of accession negotiations. It is especially feasible in situations where there are many small and few big candidate countries. Some players may have great incentives to free-ride and use the hard bargaining position of one specific candidate country in order to secure advantageous results for themselves without bearing any political or other costs. Furthermore, the structure of negotiations, namely their division into specific negotiation areas, results in many opportunities to link the negotiated issues or to prepare special package deals. The EU’s negotiators, because they are more skilled, powerful and have far better knowledge of the negotiation subjects, are basically the more active party in preparing package deals. At the same time, the EU’s approach to accession negotiations, according to which the negotiations may not be considered as final until an overall agreement has been established, extends the process of linking issues and making sidepayments to the very end of the accession negotiations, in which the last word belongs to the EU side. All these characteristics bring some researchers to the conclusion that the applicant countries, which have little bargaining power, should not attempt to make too many demands on the EU, since doing so will further weaken their negotiating position. Instead it is suggested that they should aim for outcomes that would be close to those preferred by the EU (Nicolaides, 1998b: 2).

3.4.3

Hypotheses

As highlighted in the section on methodological foundations of the study, accession negotiations are seen as a game played at the two levels simultaneously. Both sides form their negotiating strategies taking into account important 73

3 Theoretical and methodological framework of the study domestic political economy considerations. The EU’s negotiators as well as the Polish negotiators are bound to use double-edged strategies based on the interdependencies between the domestic and international levels of the game. Substantial asymmetry that characterizes accession negotiations even increases the need for playing strategic games at both levels. Especially the party that believes itself to be less powerful wants to strengthen its bargaining position and is prone to use the logic of two-level games. Therefore, a worse position of the candidates does not have to lead to worse negotiation outcomes. According to the two-level-game school and the ‘Schelling conjecture’ negotiations are not simply determined by power but more by the way governments behave and use their bargaining chips. Rubin and Zartman (1995) pointed to the surprising effectiveness of asymmetrical negotiations. It was noted that negotiations in which one party is more powerful and the other one is less influential proceed much more smoothly than negotiations in which parties are more or less equal, because parties in symmetrical relations tend to be more dominant and at the same time more exploitative. Thus, tough negotiations are more likely in situations where there is symmetry between the parties. In asymmetrical negotiations, the tendency of the more powerful party to domination and to exploitative behaviour is limited by several important factors. The weaker parties are usually more active in the negotiations and they look for ways of empowering themselves, whereas the powerful side is being distracted by many other issues (Rubin/Zartman, 1995: 358-359). This implies that asymmetrical negotiations create a good environment for playing two-level games. Here the risk of eventual deadlocks prompted by double-edged strategies seems to be lower than in the case of symmetrical encounters. The most commonly used double-edge strategy is based on ‘tied hands’ – national governments argue that they cannot agree on a specific negotiation issue, since it has no chances for domestic ratification. As the previous sections have shown, the EU is the more powerful party in the negotiations – it is better equipped with alternatives to the negotiated agreement, has far better access to information and designs the rules of the game both at Level I and Level II. The 74

3 Theoretical and methodological framework of the study EU decision makers shape the institutional structure and procedures for bargaining at the international level, including the Community level, which is in essence international, and at the same time each member state arranges the ratification procedures on its own domestic scene. Negotiators from the candidate countries have no vote as regards matters related to institutional framework and the rules of the game at Level I. Only Level II arrangements, including institutional rules governing the domestic ratification procedures can be subject to their influence and strategic manipulation. Thus the first hypothesis derived from the theoretical insights of the twolevel-games school suggests that the Polish negotiators, having very limited possibilities of affecting the external rules of the game have focused their strategic actions on the domestic institutions, stressing the importance of agricultural problems in the internal arena. The Polish government, in order to have the stronger position in the bargaining game with the EU, may impose on itself significant internal constraints by reinforcing the political importance of the specific domestic groups and by granting a veto power to domestic constituencies. The EU does not have to use similar tactics, since its negotiators are handicapped internationally already before they enter the bargaining game with the third countries. Negotiations on the admission of a newcomer are preceded by internal negotiations between the incumbents regarding reforms of EU policies and institutions which are to make space for the new members. When the agreement between the member states is eventually reached, it is actually impossible to renegotiate it. Any change in the given negotiating mandate and playing with its own win-set would imply renewal of the hard internal bargaining between the fifteen member states. Therefore, the second hypothesis claims that EU negotiators, having enough bargaining capabilities toward the external agents and a smaller room for manoeuvres in their internal environment, have adopted tactics to alter domestic constraints of the negotiating opponent primarily related to agricultural issues. It can be assumed that the EU’s bargainers will base their actions at the international level on synergistic issue linkages, trying to modify Polish perceptions of domestically acceptable outcomes. To conclude, the Polish negotiators will rather 75

3 Theoretical and methodological framework of the study focus on limiting the size of the internal win-set, whereas the EU’s representatives will be searching for new policy options that would advantageously extend the zone of possible agreements.

3.5

Research methods

The chosen theoretical approach and derived hypotheses are the fundamental guidelines for collecting empirical data and organizing the facts and phenomena. As suggested by King, Koehane and Verba, the best way to approach a scientific inquiry in social sciences is to choose a theory and select those facts that are observable implications of the theory (King/Keohane/Verba, 1994: 46). There are many research methods available across the discipline of international political economy. International political economy studies apply both quantitative and qualitative methods - statistical analyses, comparative case studies, single case studies, descriptive and interpretative methods. Also national preferences, politico-economic processes and international interactions can be analysed using both quantitative methods and statistical analysis and qualitative methods based on a more subjective approach to the studied issues. In large scale systematic analyses of international negotiations case studies and comparative case studies including either a small number of similar cases or a large number of different cases (“the most similar” – small-N research and “the most different” – large-N research designs) are dominant (cf. Druckman, 2002; Odell, 2001)37. There are also more abstract studies based on social experiments in laboratory conditions. Researchers examine the behaviour of markets, decision-making processes, political competition or negotiation games using mathematical theories and tools that are to help in decision-making or in developing bargaining strategies.

37

Odell, analysing research methods in International Political Economy, observes that so far single case designs and comparative case studies, often integrating quantitative and qualitative knowledge most contributed and will continue contributing to the development of the discipline (Odell, 2001). According to Hopmann, a similar observation concerns the case of international negotiations analyses (Hopmann, 2002).

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3 Theoretical and methodological framework of the study For the analysis of national preference formation and negotiation dynamics the present study will employ qualitative methods. The major aim of the study – to better understand the motives and interests of the negotiating partners and to explain the course and the outcomes of the negotiations – renders other methods less useful. Qualitative data is considered to provide rich and detailed information about the bases of actions, events, behaviour and processes and helps one to understand the analysed problems in their social context (cf. Denzin/Lincoln, 1994). Data analysis methods, data collection and epistemological issues concerning causality, scientific explanation as well as the level of explanation are considered fundamental steps in qualitative methodology (cf. Ragin/BergSchlosser/de Meur, 1998). The epistemological foundation for inquiry is methodological individualism, broadly applied in the mainstream of political economy and public choice studies. It follows the methodological approach of neoclassical economics, i.e. the image of homo oeconomicus, a rational utility maximizer. The basic research method is the single analytical case study, where a case will mean a bounded negotiation processes (Polish–EU accession negotiations on agriculture), documented chronologically from early to later stages of negotiation (Druckman, 2002). The study applies deductive reasoning, approaching the case through the lens of chosen theoretical concepts, and then, relying on an idiographic approach, observes whether the deduced patterns were indeed present in the studied case. The detailed analysis will be based on description and interpretation. The methods of analysing empirical materials will also be tightly related to the theoretical underpinnings and models for interpretation of facts and processes (Silvermann, 2001; Babbie, 2003). As in most single case studies, the research does not aim at falsification of theoretical propositions. It is basically limited to showing the value of theoretical concepts for the analysis of the chosen research problems (Druckman, 2002). The theoretical framework serves as a means to structure the analysis through the use of theoretically relevant factors. As indicated in the previous section, the choice of relevant explanatory factors has been guided by the theoretical premises of the two-level game school. The explanatory variables to be examined include differences in interests of relevant actors and national preferences, the institutional 77

3 Theoretical and methodological framework of the study structure of negotiations and the bargaining power of negotiators. The study first focuses on domestic politics and policies in Poland, specifically on sectoral issues related to agriculture, with the major aim being to produce the insights about national preferences in Poland as regards agriculture and its integration to the EU. To have a fuller view of the analysed issues and to understand the factors that have shaped the interests of actors, the study looks at past developments – on the one hand, it reviews the role of agricultural issues in past enlargements of the EC/EU and past reform processes of the CAP and, on the other hand, it shows agricultural and rural development in Poland under communism. In the following step, the research is focused on the analysis of the course of the agricultural negotiations and on testing whether the double-edged strategies, as specified in the research hypotheses, were used in the case of agricultural negotiations between Poland and the EU. The research is primarily grounded on the analysis of government documents and statements published in the context of the enlargement negotiations: Polish, those of the EU's member states as well as the EU’s institutions, including official negotiating positions and official answers to the negotiating positions. Other data required to address the problems specified in the project include: documents of social and political organizations, reports on actions taken during the negotiations, official and unofficial speeches and comments made by relevant actors, press releases and press interviews with government officials in Poland and in the EU member states and with the officials of the European Commission. Relevant academic literature, reports of research institutes, which monitor agricultural policy developments and the socioeconomic situation in the agricultural sector, as well as statistical data make up additional important source for the analysis. The basic research material has been collected using different information sources – library searching, searching in the official EU databases, in press databases, in archives of government institutions and public agencies as well as on the Internet. Apart from documentary research, another method aimed at producing needed empirical data has been interviewing. Personal semi-structured interviews have been conducted with persons directly

78

3 Theoretical and methodological framework of the study engaged in the accession negotiations. Also, questionnaires have been used while gathering information from the representatives of both negotiating parties.

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4 Polish agriculture in the transformation process 4.1

Historical background to agricultural and rural development in Poland

Polish agriculture has undergone two types of systemic transformations during the last fifty years38. After the Second World War, Polish agriculture and rural areas were subject to socialist-type changes. Despite fundamental transformations in the country’s socio-economic system and unyielding efforts of the successive communist governments to convert peasant farming into a socialist system of agriculture, Polish agriculture and rural areas remained almost unaltered. Agricultural production was still organized in small-scale and owner-operated farms which dominated the few state and cooperative production units. The second transformation from a planned to a market economy has changed agriculture’s environment but agriculture itself essentially has not changed as yet. Farming remained peasant farming, as it had been before the transition (cf. Woś: 2000). In the foreseeable future the Polish agricultural sector will go through another transformation after the accession to the EU. Agricultural producers will be included in the EU’s common market as well as in the CAP. The present chapter reviews fundamental stages in rural and agricultural development in Poland and addresses economic reforms in agriculture as well as the performance of the Polish agricultural sector during transition to a market economy. The chapter is structured as follows. In the first section the historical background of economic development of the agricultural sector in Poland will be presented. The short review of fundamental stages of agricultural and rural development under communism will shed light on the initial conditions which have determined agriculture’s second transition from a planned to a market economy. In the following sections market reforms in agriculture as well as the effects of economic transformation so far will be surveyed. The role of the agricultural sector in Poland’s economy and the Polish farm structure against the background of EU agriculture will be addressed. The chapter will present the 38

These transformations have also been described as socialist-type revolution and capitalist-type revolution (Woś, 2000: 7).

4 Polish agriculture in the transformation process characteristics of agricultural holdings, changes in agricultural production, agricultural profitability and farmers’ incomes. Not only the problems of agriculture itself, but also problems in agriculture’s environment, the developments in up and downstream sectors as well as in the foreign agri-food trade will be considered.

4.1.1

Major sectoral developments under communism (1945-1989)

After the end of the Second World War, quite new conditions for the functioning of the Polish agricultural sector emerged. The state’s territorial borders changed and thereby the area of utilised agricultural land. Polish farmland was moved from the east to western and northern parts, including the former German territory. The communist authorities set out to reorganize the basics of farming starting from agricultural and land reform. The communist decree on agricultural reform and the provisions of settlement in western and northern lands had decisive influence on the farm structure in Poland (Szemberg, 2001a: 7). According to the decrees adopted in January 1945 and in September 1946, land property that exceeded 50 ha in the eastern and central parts of the country and 100 ha in the northern and western regions was to be expropriated. All farms formerly belonging to the Germans and collaborators were subject to confiscation. The land of the so-called ‘Regained Lands’ was mainly distributed among small and landless farmers. The new farms amounted on average to 7-8 ha, the farms that already existed could be enlarged to 8-10 ha and the farms of settlers to 15 ha. The farms from the central and eastern regions of Poland had on average 4-5 ha39. All things considered, the first decisions regarding the agricultural system in communist Poland, notably the distribution of land from which around 800.000 new and small farms were established only during the first post-war years, had tremendous impact on the further developments of Polish agriculture and rural areas. There was no land integration, and farmers who operated on very small farms in southern and eastern Poland were reluctant to change to somewhat bigger farms located in the 39

The ‘Decree on agricultural system and settlement on the area of the Regained Lands and former Free City of Gdańsk’ of 6 September 1946 specified that the area of agricultural land in agricultural holdings, depending on soil, terrain and climatic conditions, should amount to 7-15 hectares.

81

4 Polish agriculture in the transformation process ‘Regained Lands’. Furthermore, integration in the agricultural sector was essentially hampered by the fact that for over one hundred years (between 1795 and 1918) the Polish territory had been partitioned between the three European powers – Prussia, Austria and Russia. Each partition represented a different level of development, had different agricultural structures and furthered different modes of agricultural production (Wilkin, 1997). The agricultural policy of the communist authorities was subordinated to subsequent economic plans that were to convert the country’s socio-economic system into a Soviet-type regime based on a centrally planned and nationalised economy. Therefore the communist state became a key actor responsible for all aspects of the agricultural sector’s functioning. The authorities were dealing with fixing prices, distributing agricultural and food products and defining production aims. The agricultural policy during the whole communist period was aimed at three fundamental objectives. The first and the most important task, derived from ideological motives, concerned transforming private agriculture into a socialist system of agriculture through collectivisation, nationalisation of land and other productive resources. The second goal of agricultural policy that was common for all communist governments was related to increasing the levels of agricultural production that would ensure sufficient food supplies for Polish society. Polish farming was to provide cheap agricultural produce for the growing urban population. The third ideological objective concerned evening out social inequalities between rural and urban areas. A few basic stages in agricultural and rural development under communism can be distinguished. During the first post-war years (1945-1947) the state, due to a very low volume of agricultural output, was engaged in food rationing. After the rationing of food had been eventually abolished in 1947, the state retained full control over the prices of agricultural products and organized foreign trade in trade monopolies. The second stage of agricultural policy development falls in the years 1949-1956, when the most intense efforts at Stalinization of the socio-economic system in Poland occurred. The first three-year plan for Economic Reconstruction adopted in 1949 assigned very important tasks to agriculture in the post-war 82

4 Polish agriculture in the transformation process development of the country. In general, the communist authorities adopted a very restrictive policy course toward the sector, weighing it down with the costs of the country’s industrialisation. Positing the idea of social egalitarianism, the communist state started to realize the policy of cheap food for all. In accordance with Stalinist ideology, this goal could have been best pursued by organizing agricultural production in large-scale and state-owned farms. Simultaneously, the food industry was to be organized in huge processing and production units, entirely controlled by the communist state40. Thus, in the 1950s the overall program of collectivisation of agriculture was launched. Furthermore, in 1951 the authorities introduced the system of obligatory deliveries which highly discriminated against farmers. Farmers were obliged to deliver the bulk of their produce to state purchase units where the prices were usually lower by one-third as against prices at market. In the situation of very limited production abilities of Polish agriculture at that time and the overall low supply of farm products, the policy of ‘cheap food’ pursued by the communist government negatively affected farmers’ welfare. In fact, in the first two post-war decades they were bearing the costs of the country’s economic development and were receiving far lower incomes than were the inhabitants of urban areas. The primary aim of the communist regime was to keep food prices to consumers low, which was to be ensured by a centrally organized food chain in which farmers had mainly delivery functions (Johnson, 1993; Woś, 2000: 78-84). Though the disparity of farmers' incomes ceased to grow, it still remained. In the communist period, a new social category of peasant-workers who combined farming with working in industry and services emerged41. Off-farm jobs, mainly in state factories, allowed farmers to improve somewhat their income situation. However, in the second half of the 1950s the relation between farmers’ incomes and incomes of full-time employees in other sectors of the economy still amounted to 75 percent (Klank, 1997). In order to secure equal incomes for all social groups, the communist state 40

For a comprehensive analysis of collectivised agriculture in Marxist regimes see e.g. Pryor (1992). 41 It is worth noting that the phenomenon of ‘dual professional’ farms negatively influenced the processes of structural changes in Polish agriculture. Farmers who were working in industry did not plan to give up farming and transfer their land to more production-oriented farms; likewise during the transformation to a market economy these farms served as an important social safety net for peasant-workers that lost employment in state companies (Szemberg, 2001a: 9).

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4 Polish agriculture in the transformation process introduced in 1956 a principle of equal rate growth of incomes for farm and nonfarm households. Indeed, in the following years incomes of farmers were gradually brought closer to incomes received in other segments of the economy42. Pursuing both parity income for farmers and low prices for consumers, the communist state used the two separate systems of prices – one for agricultural producers and the other for consumers, which over time allowed for evening out the differences in income situation between rural and urban populations but at the same time resulted in continuing disequilibrium on the food market (Świetlik, 1998: 159-160). When the efforts to build socialist agriculture by means of collectivisation had turned out to be unsuccessful under Polish conditions, the authorities adopted a new and more moderate policy course toward the agricultural sector. The collectivisation in Poland did not succeed mainly due to the strong attachment of the Polish farmers to small-scale farming and private property. In 1955 the number of collective farms in Poland amounted to above 9.000 with 188.000 families and an area of 1,9 million ha. When the government allowed for decollectivisation in 1956 the number of collective farms dropped precipitously to 1.534 with 27.000 families and an area of 260.000 ha (Fallenbuchl, 1988: 126)43. The communist authorities accepted the fact that converting Polish agriculture into Soviet-type agriculture could not be achieved in a short-time horizon. The survival of private farming was also explained on scholarly grounds of Marxist economics. It was stressed that basically in the transitory period from capitalism to socialism the co-existence of the system of small-scale private farms and the socialist system of agriculture (state and cooperative sectors) is normal and economically justified44. However, the new and more liberal policy course toward 42

In 1978 and 1979 the relation of farm to non-farm income amounted to 90 and 93 percent respectively, in 1980 it fell down to 84,2 percent, but already between 1981 and 1984 farmers received incomes comparable to incomes of non-farm households (Klank, 1997). 43 For a comprehensive review of collectivisation processes in the agricultural sectors of the communist countries from Central and Eastern Europe see e.g. Halamska (1998). 44 Outstanding Polish economist Oskar Lange in his book Political Economy (Vol.I., 1959) explained the survival of the private sector in agriculture in the following way: “...there is still a mode of production, which is not dominant in any historical epoch but which, in many different historical epochs occurs as an incidental – sometimes very important – mode of production. It is simple commercial production, called also small-scale production. (...) In the form of individual peasant production it plays a very important role in capitalism as well as in the initial phase of development of socialism”, [quoted by Nasiłowski, M. (1974: 439), author’s own translation].

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4 Polish agriculture in the transformation process the sector did not imply that the communist regime had given up on the idea of socialisation of agriculture. The ideological postulate of socialised agriculture was implemented during the following decades by other and less drastic means, i.a. by increasing the number of state farms (PGR – Państwowe Gospodarstwa Rolne), despite the high costs of their maintenance, by establishing collective agricultural units to deliver services to private farms and by controlling upstream and downstream industries (Wilkin, 1997: 116). At the beginning of the 1960s the real burdens imposed on farmers somewhat decreased, mainly due to smaller obligatory deliveries and higher purchase prices for agricultural produce. At the same time state authorities decided on intensification of agricultural production. However, the agricultural policy pursued in the 1960s only to a limited extent allowed for the investment needs of the private sector in agriculture, which essentially restrained the possibilities of sustained growth of agricultural production in Poland. Consequently, the Polish population continuously experienced food shortages under communism. The difficult agricultural situation and the problems of the food economy gave rise to increased tensions and serious political conflicts between the Polish people and the communist authorities45. In the 1970s the total level of agricultural support in Poland substantially increased. The new course of state policy toward the agricultural sector was mainly prompted by the urgent necessity of increasing the volume of agricultural production. The program of agricultural policy adopted in 1971 stressed the need to improve the profitability of agricultural production especially for farm products that had been underpriced. A new system of prices introduced by the government gave preference to livestock production. At the same time, the state eventually resigned from the system of obligatory deliveries that had been in force for almost twenty years. In addition, individual farms were included in the state’s social security system (Woś, 2000: 73)

45

The prices for meat were especially sensitive. Meat has been described as a political commodity in communist Poland, e.g. the higher prices for meat introduced by the end of 1970 were the direct cause of social riots which led to the fall of the First Secretary Władysław Gomułka and to the change of Józef Cyrankiewicz’s government. Later on, a serious deterioration in food supply led to the crisis in 1980-81 which resulted in martial law.

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4 Polish agriculture in the transformation process Despite the economic programs that were to lead to intensification of agricultural production and food industry development, the demand for agri-food products far exceeded the available supplies. This pattern persisted during the whole communist period. Farmers and the food industry could not satisfy the growing food needs of the Polish population, since the volume of agricultural production had not increased. This was caused by the very weak performance of other sectors of the economy supplying agriculture with the basic agricultural inputs and also by the very low supply of other consumer goods. Agricultural machines, fertilisers, building materials, fuels, and other agricultural inputs were primarily provided for state farms, which were rather unprofitable. The traditional small-scale individual farms, though they seemed to perform better than state and cooperative farms, had only limited access to farm inputs and were devoid of major state subsidies. In an effort to increase agricultural production and to ensure the country’s food self-sufficiency, the communist authorities decided to expand livestock production in state farms by means of large-scale modern methods of production (Fallenbuchl, 1988: 128). This decision was of great importance for the future development of the Polish agricultural sector and the overall national economy. There is a broad consensus among agricultural economists that the chosen agricultural strategy of expanding the production of livestock was very costly and economically inefficient. The launched livestock production in so-called factory farming was based on capital-intensive technologies and absorbed enormous quantities of imported grains and feeds46. The total production costs in these large-scale farms were higher by about half than in the traditional peasant farms. All things considered, the chosen model did not lead to higher levels of agricultural production and was doomed to failure, mainly because of the scarce 46

In consequence of this policy, the deficit in agricultural trade grew tremendously in the 1970s; in 1972 the deficit amounted to 100 million USD and in 1981 it increased to 2,3 billion USD (Cook, 1988: 139). This substantial growth in the trade deficit resulted not only from imports of feeds and grains but also from imports of other food commodities. In the beginning of the 1980s, when the economic crisis became clear, agricultural imports were cut by more than half. Though economists agree that these increased imports represented a burden to the balance of payments and were costly for the whole national economy, there are also views that imports, especially those of feeds, had beneficial effects on Polish agriculture, since they created the opportunity to exploit important production potential which otherwise would not have been revealed (see Woś, 2000: 94).

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4 Polish agriculture in the transformation process financial resources of the communist state. Furthermore, the programme had a very negative impact on small-scale, owner-operated farms, whose production potential had been effectively curtailed by the communist authorities’ exclusive focus on state and cooperative production units (Woś, 2000: 69-76). Summing

up,

the

long-run

objective

of

successive

communist

governments to transform private agriculture into a socialist system of agriculture and actual acceptance of private farms as the main base for food production resulted in a highly inconsistent policy toward the sector. The communist authorities aimed at both increasing agricultural production and providing cheap food supplies for the Polish population, which even in the conditions of an entirely planned and centralized economy turned out to be unfeasible. State and cooperative farms which absorbed considerable investments and enjoyed special privileges regarding access to agricultural productive factors remained unprofitable and did not play a major role in increasing the volume of agricultural production. Therefore, state food policy in Poland was highly contingent upon private farming and the centrally planned economy had to offer a special kind of niche for its existence. Individual agricultural farms, which accounted for almost 80 per cent of total farmland in Poland, required small material and capital expenditures. Nonetheless, they were more productive than state and cooperative farms. Even so, the communist authorities did not want private farming to become too successful in the socialised economy. Not only did private farmers have limited access to main agricultural inputs, they also had to contend with highly restricted land transactions. Individual farms were subject to strict regulations as to their size; farms larger than 7 ha were regarded as a capitalist element in rural areas and encountered numerous repressive measures. Only in the 1980s were some new provisions that allowed for the needs of modernisation in private agriculture introduced. The authorities eventually acknowledged property rights of individual farmers to their land and thereby formally accepted the permanent status of a dominant private sector in Polish agriculture. Furthermore, the rules for selling and buying of agricultural land were somewhat relaxed and farmers were given full right to purchase land from the State Land Fund. However the introduced changes had only limited impact on the farm structure in Poland, 87

4 Polish agriculture in the transformation process which had already been substantially frozen during the first post-war decades. Though the private sector delivered a major part of farm produce in Poland, it was kept underinvested and unmodernized. The attitude of decision-makers toward the dominant private sector in agriculture can be described as moderate acceptance combined with disregard for modernisation needs in the sector. Gorlach notes that during 45 years of communist regime, the state authorities applied the same policy of repressive tolerance toward individual farmers (Gorlach, 1990: 86). Despite the propagated idea of the leading role of a worker-peasant alliance in socialist society, Polish farmers had to cope with the countless adversities throughout the communist period. 4.2

Polish agriculture in transition from a centrally planned to a market economy

In 1989 the private sector in agriculture included over 2 million individual farms, which managed an area of 14 million hectares, 76 per cent of the total utilised agricultural area in Poland. The state farms and cooperative farms of the so-called socialised sector occupied about 19 percent and less than 4 percent of the total farmland respectively. Table 4.1 Agricultural structures in Poland in 1989 Private sector Forms of production Individual farms Land as a share in total 76,3

Public sector State farms 18,7

Co-operatives 3,7

UAA (%) Land in 1000 ha

14.310

3.507

705

Number of farms

2.138.000

2.523

2.177

Average size of farm, ha

6,2

2.713

324

Employment (in '000)

3.300

469,3

178,7

13

25

Persons employed per 23 100 ha

Source: Guzewicz (1998: 66-67); Milczarek (2000).

The transformation in the agri-food sector in Poland started in August 1989 along with the decision on liberalization of prices for all agri-food products.

88

4 Polish agriculture in the transformation process In the first stage of systemic transformation (1989-1991) agricultural policy was subordinated to the general economic reforms which were to lead to the country’s macroeconomic stabilisation. In January 1990, the programme of general economic reforms was introduced. The government opened up the national economy, broke up trade monopolies and adopted an entirely liberal agricultural policy removing all state subsidies for agricultural and food products (Wilkin, 1997). As a result, in 1990 Poland adopted the most liberal customs system in Europe at that time47. The state also lifted other border measures, including most non-tariff barriers (Guba, 1999). Initially, protected with the exchange rate and several devaluations of the złoty, farmers did not experience negative effects of liberalisation. However, already between 1990 and 1991 the situation on the exchange market stabilised and the exchange rate ceased to protect Polish producers. The profitability of agricultural production and farmers’ incomes fell considerably (Kawecka-Wyrzykowska, 2000). The basic task of the government transformation policy concerned the creation of market institutions in the agricultural sphere and disintegration of the state farm sector48. As to privatisation of state farms, the state’s activity, despite official commitments, was rather limited during the first years of the transformation. In contrast to other post-communist countries which collectivised agriculture, land reform was not the key element in the transformation strategy in Poland (see: Lindemans/Swinnen, 1997; Milczarek: 2000)49. The reforms addressing the problems of the socialised sector and its privatisation started only two years after the beginning of the transformation process. Earlier, the privatisation process of state farms was based on the law of privatisation of state enterprises adopted in July 1990. However, due to legal and financial constraints it proceeded very slowly. Only the adoption of the special law in 1991 47

The tariffs for agri-food imports were considerably lowered running at between 5 and 25 percent ad valorem (Guba, 1999). 48 See: An Agricultural Strategy for Poland, Report of the Polish, European Community, World Bank Task Force, The International Bank for Reconstruction and Development/The World Bank, Washington 1990. 49 Lindemans and Swinenn note that the absence of an intense political debate on restitution in agriculture in Poland has been striking. They indicated that political gains from decollectvisation have been lower in Poland than in other CEECs; therefore, land reform has been delayed. Besides, there were worries about land restitution to former German owners (Lindemans/Swinnen, 1997: 273).

89

4 Polish agriculture in the transformation process establishing the Agricultural Property Agency of the State Treasury (APA) speeded up the privatisation processes of state farms. Fast organizational and ownership changes in the public sector were very needed especially as state farms (PGR) proved to be still highly unprofitable in the early years of systemic transformation. Already in 1986 the rate of profitability of state farms (measured as the relation of profits to the costs incurred, with the exclusion of subsidies provided to the public sector of agriculture) was negative and amounted to –4,6 percent. In the new systemic conditions, after the removal of subsidies provided to the public sector, the performance of state farms quickly deteriorated50. State farms lost their financial liquidity and the state farms’ sector experienced severe decapitalization51. Likewise, cooperative farms experienced significant decline in profitability. However, in contrast to former state farms, cooperatives remained profitable in the last years of the centrally planned economy as well as in the first years of transition. Nonetheless, in the middle of the 1990s they experienced a significant fall in profitability. About one third (750) of all cooperative farms were liquidated between 1990 and 199752. As a result of privatisation and restructuring of state and cooperative farms, the number of persons employed in the former public sector decreased by two thirds. In contrast to initial expectations, individual private farms also did not find themselves in new systemic conditions. The first effects of liberalization in the form of the increased prices for agricultural products were quite positive for Polish farmers. However, this positive effect on agricultural prices lasted only for several months and since the beginning of 1990, farmers’ incomes began to fall. 50

The rate of profitability of state farms at the outset of transition, and yet before the start of the privatisation processes further declined to –22,4 percent (1991). Only since the mid-1990s, former state farms, farms of APA and new farms established on real estate of the State Treasury have started to bring some small profits (Guzewicz, 1998: 80). 51 At the end of 1990, 13 state farms did not have credit capacity, at the end of 1991, 524 state farms lost it and in the middle of 1992 as many as 1.125 (Kulawik, 1998: 226-227). 52 The structural changes in cooperative farms, especially in terms of employment, were proceeding far more slowly than in the former state farms. The members of cooperatives, i.a. due to organizational structure of cooperatives, had in general a more protective attitude towards employees and were more prone to lower remuneration than the number of persons employed. E.g. in the state farms the number of workers per 100 ha declined from 13 persons in 1989 to 4,5 in 1997, while in cooperatives employment declined from 25 persons per 100 ha to only 13,5 persons in 1997 (Guzewicz, 1998: 74).

90

4 Polish agriculture in the transformation process Liberalization, market-driven turnover of agricultural products, and an open trade regime resulted, on the one hand, in lower prices for agricultural products received by farmers and, on the other hand, in higher prices paid by consumers. The fundamental decline in effective demand for agricultural produce revealed the existence of food surpluses in the Polish agricultural sector, which had been unimaginable for over 40 years of centrally planned economy. Consequently, agricultural output as well as agricultural profitability and farmers’ incomes have declined significantly. The policy implications, the formation of agricultural policy during transition will be analysed in detail in the next chapter.

4.3 4.3.1

The Polish agri-food economy on the eve of accession to the EU The role of agriculture in Poland’s economy

The fundamental indicators of the role of agriculture in a country’s economy are its share in Gross Domestic Product and in total civilian employment. The years of systemic transformation have brought about a significant decline in agriculture’s contribution to the Polish economy and an increase in the importance of other sectors, such as services, industry and construction. In consequence, in terms of agriculture’s contribution to GDP, Poland does not differ from economies of the EU member states where agriculture has a marginal share in the structure of production. By the end of the 1990s the share of agriculture in the EU-15 GDP accounted for 2 percent, and in most developed member states, such as Germany, Great Britain or Sweden, it did not exceed 1 percent. In Poland the share of agriculture's value added in GDP has declined from 13 percent in 1989 to about 3 percent in 2000 (European Commission, 2000a, 2001a, 2002f). The major economic indicators determining the role of the agricultural sector in Poland, in other transition countries and in chosen EU member states53 are presented in the following table:

53

Here and in the following sections, Polish agriculture is basically compared with the agricultural sectors of EU member states from a similar climatic zone. Specifically agricultural sectors of Germany, France, Denmark, and Great Britain serve as a background for comparisons.

91

4 Polish agriculture in the transformation process Table 4.2 The role of agriculture in Poland and in chosen European countries, 2000 Utilised

Gross Value Added of

Agricultural Area

Agriculture

000 ha

Million EUR

Agricultural Employment

Share of agr. in 000

% of total

GDP (%)

employment

Poland

18.220

4.965

2,9

2.711

18,8

Czech Rep.

4.282

1.846

3,4

208

4,5

Slovakia

2.440

560

4,5

119

6,7

Hungary

5.854

1.913

3,9

227

6,0

Germany

17.067

18.979

0,9

958

2,6

France

29.885

31.720

2,3

971

4,2

United K.

15.722

10.695

0,7

424

1,5

Denmark

2.666

3.534

2,0

99

3,7

130.443

146.426

1,7

6.770

4,3

EU-15

Source: Agricultural Situation in the European Union. Statistical and economic information (2001, 2002).

Though the share of agriculture in the country’s GDP has significantly declined, the role of agriculture in Polish economy is still very important. It results from the high percentage of economically active persons who find employment in this sector of the economy. The decline of agriculture’s share in the country’s economy has not been accompanied by an economically desirable decline in agricultural employment. The total number of persons employed in agriculture in 2000 amounted to 2,711 million, which represented 18,8 percent of total civilian employment in Poland54. In 2000 in 15 EU member states agriculture gave employment to 6,770 million persons, i.e. to 4,3 percent of the EU-15

54

According to EU statistical data, agricultural employment is calculated on the basis of the Labour Force Survey definition. Following the OECD, the EU takes into account only those economically active persons who gain a significant part of their income from agriculture. The Polish statistical data include all persons who declare that agriculture constitutes for them at least one source of income. According to this approach, in 2001 Polish agriculture gave employment to almost 26 percent of the total workforce (Statistical Yearbook of the Republic of Poland, 2002). Interestingly, also pensioners or retirees who declare that work on a family farm together with other members of family are included to the category of employed in agriculture. Especially the inclusion of retirees which receive payments from the Farmers Social Security Fund is considered as deforming the real picture of the level of employment in agriculture in Poland (Michna, 2001: 242).

92

4 Polish agriculture in the transformation process workforce55. In Poland agricultural employment has been then four times higher than in the EU. The Polish agricultural sector, in terms of agricultural employment, has also stood out from agricultural sectors of other candidate countries from Central and Eastern Europe. In the group of the early expected entrants to the EU, only in Lithuania was agricultural employment at a similar level (19,6 percent). In all remaining candidate countries from the first enlargement group agricultural employment significantly declined during the 1990s56. The visible break-up between the share of agriculture in GDP and number of persons employed in agriculture indicates very low labour productivity. In this respect, Polish agriculture is lagging far behind EU agriculture and also behind the agricultural sectors of some other CEECs. In terms of productivity, the agricultural sectors of the Czech Republic, Slovakia, and Hungary are closer to the EU levels than agricultural sectors in which peasant farming survived. In contrast to Poland, in other CEECs collective farms did have the dominant position in the structure of production as well as in land use. Privatisation and restructuring of the collective farms resulted in the emergence of large, private agricultural holdings that lowered employment and increased the level of productivity. Fundamentally, the former state farms and cooperatives have been easier to reform than individual, small-scale family farms which, apart from producing, have had other important social functions. Paradoxically, in terms of 55

In the EU, like in other developed countries, agricultural employment has steadily been declining, e.g. in 1970 in Germany 9 percent of the total workforce was employed in agriculture and in 2000 only 2,6 percent (958 thousand persons), in France 13,5 percent (3 million persons) and 4,2 percent (971 thousand) respectively. In the southern EU member states and in Ireland in which farm sectors played a more important role, agricultural employment declined as well – in Greece it declined from 40 percent in 1970 to 17 percent in 2000, in Spain from 30 percent to 7 percent and in Ireland from 27,1 percent to 8 percent (Agriculture Situation in the EU. Statistical and economic information, 2001). In Poland, according to the national statistics, agricultural employment between 1970-2000 declined only from 35 percent to around 26 percent. During the first decade of systemic transformation, the decline in agricultural employment was also very low – in 1989 the total number of employed in agriculture, both in private and public sectors, amounted to 3,948 million; in 1998 agricultural employment was only slightly lower (3,905 million) (Statistical Yearbooks, 1971, 2001). 56 E.g. in Estonia agricultural employment declined from 18 percent to 7 percent, in the Czech Republic from 11,8 to 4,6 percent, in Hungary from 15,8 to 6,5 percent, and in the Slovak Republic from 12,2 to 6,7 percent. Only in Romania and Bulgaria, that were to accede the Union at earliest in 2007, did agricultural employment considerably increase during the transition years. In 1990 the share of those employed in the sector compared to the total workforce in Bulgaria accounted for 17,9 percent and in 2000 26,7 percent. In Romania the increase was even more enormous – from 28,2 percent in 1990 to 45,2 percent in 2000 (Frohberg, 2002).

93

4 Polish agriculture in the transformation process agricultural productivity and the farm structure, the legacy of state-owned agriculture has turned out to these countries’ relative advantage. All things considered, Polish agriculture still plays a quite important role in the country’s economy. The economic importance of agriculture in Poland results mainly from high agricultural employment. The large number of persons employed in agriculture weighs down the whole sector and affects its performance. At the same time, the sources of high agricultural employment are more of a social than economic nature. The short review of the major economic indicators related to agriculture shows that the Polish agricultural sector has been more important not only when compared to agriculture of EU countries but also in comparison with agricultural sectors of some other transition countries from Central and Eastern Europe.

4.3.2

The structure of farming and characteristics of Polish farms

As a result of privatisation processes, the share of the private sector in using agricultural land increased after the first decade of transformation57. According to the data of the Agricultural Census, there were 2,046 million agricultural holdings in Poland in 1996 (National Agricultural Census, 1997). In 2000 the total number of agricultural holdings fell to 1,885 million (Rolnictwo i gospodarka żywnościowa w Polsce, 2001)58.

57

In 2001 the dominant private sector, comprised of individual farms, cooperative farms, and farms of other owners (private agricultural companies and companies with a dominance of private ownership) used 17 million ha, which accounted for 92,7 percent of Poland's agricultural land. The public sector, that is state farms and farms of APA as well as other agricultural units used 1,3 million hectares, which represented 7,3 percent of UAA (Dzun, 2002). 58 According to the provisional results of the 2002 Agricultural Census the total number of farms (of a size above 1 ha) in 2002 was estimated at 1,962 million, which would imply that the number of farms has increased between 2000 and 2002. (Provisional Results of 2002 Agricultural Census, 2002).

94

4 Polish agriculture in the transformation process Table 4.3 Agricultural holdings59 in 1996 and 2000

2000

1996

Distribution of farms and Utilised Agricultural Area according to farm area

‘000 farms % Agr. Area (000 ha) % ‘000 farms % Agr. Area (000 ha) %

Total

1-2

2-3

3-5

5-10

10-15

15-20

20-50

>50

2.046,8

462,4

281,7

386,3

521,1

217,4

89,5

75,7

12,7

100

22,6

13,8

18,9

25,4

10,6

4,4

3,7

0,6

16.968,6

650,9

690,1

1.510,1

3.715,7

2.633,8

1.532,8

2.057,0

4.178,6

100

3,9

4,1

8,9

21,9

15,5

9,0

12,1

24,6

1.885,7

448,4

269,1

344,9

448,0

185,8

84,0

89,7

15,8

100

23,8

14,3

18,3

23,8

9,9

4,4

4,7

0,8

15.932,9

445,0

651,4

1.337,0

3.185,1

2.248,2

1.444,2

2.489,7

3.932,2

100

4,0

4,1

8,4

20,0

14,1

9,1

15,6

24,7

Source: Rolnictwo i gospodarka żywnościowa w Polsce (2001: 18).

The Polish farm structure is characterised by a certain dualism – on the one hand, there are market-oriented larger individual holdings and company holdings and, on the other, there is a large share of small, subsistence and semisubsistence farms. A similar structure, with relatively high share of subsistence farms, was characteristic also for agriculture of EU member states in the 1950s and 1960s. The majority of agricultural holdings are individual family farms. Cooperatives, company holdings, and farms of the APA represent only a small part of farms in Poland. Concerning farms created on the former state farm property at the end of the 1990s, there were about 5.300 large agricultural holdings and macro-holdings with various organization forms (owned or leased by private persons, legal entities or administered by APA). Farms created on the former state farms have on average the biggest area – 439 ha (Guzewicz, 2001: 270). But generally, individual holdings farm on a much smaller area. In 2000 the average area of an individual farm in Poland amounted to 7,2 ha. To compare, in the EU-15 individual farms had on average 19 ha60.

59

According to the national agricultural census of 1996, only farms with at least one ha of agricultural land are considered as agricultural holdings (National Agricultural Census, 1997). 60 The average farm size in Germany amounts to 32,1 ha, in France 41,7, in Sweden 34,7 and in UK 69,3. (Agriculture Situation in the European Union, 2001).

95

4 Polish agriculture in the transformation process The Polish farm structure, due to historical developments and the former division of the country into three sectors governed by different powers, is regionally very differentiated. The three major megaregions can be distinguished; in the megaregion I (southern and south-eastern regions) very small farms predominate, in the megaregion II (northern and western parts of Poland) large scale agricultural holdings are dominant, in the megaregion III (central and eastern regions of Poland) medium-sized farms are prevalent61. The farm structure in Poland against the background of the EU is characterised by a low share of large and medium-sized farms and by a much higher share of small-scale farms. The farm structure in Poland is also unfavourable because the majority of holdings farm on the scattered land. In the middle of the 1990s, there were about 12 million plots. Especially individual farms located in the southern megaregion are fragmented to several small plots, which poses serious obstacles in efficient use of land and of other production factors. In 2000 farms having no more than 5 ha made up 56 percent of total farms, medium-sized farms between 5 and 20 ha represented 38 percent. To compare, in Germany in 1997 there were 31 percent of farms up to 5 ha, in France 26 percent, in Sweden 12 percent and in Great Britain 15 percent. Medium sized farms between 5 and 20 ha in these countries made up 32, 20, 38 and 27 percent of total farms respectively. In this size class, the Polish farm structure does not differ significantly from the EU structure, in 2000 about 38 percent of farms between 5 ad 20 ha were noted, though it should be stressed that the major part of these farms belonged to the subgroup between 5 and 10 ha. The distance between Poland and the EU member states is especially visible with respect to the largest farms. There are only 105.000 farms of more than 20 ha, i.e. about 6 percent of the total number of farms. These farms take up 40 percent of the agricultural area of the country62. In Germany in 1997 agricultural holdings in the size class above 20 ha represented 37 percent, in France 53 percent, in Sweden 48 percent and in

61

Megaregion I comprises the following voievodships: śląskie, małopolskie, świętokrzyskie, podkarpackie. Megaregion II includes opolskie, dolnośląskie, lubuskie, zachodniopomorskie, pomorskie, warmińsko-mazurskie voievodships and Megaregion III – wielkopolskie, kujawskopomorskie, łódzkie, mazowieckie, podlaskie, lubelskie. See for a detailed analysis Michna (1998).

96

4 Polish agriculture in the transformation process Great Britain as much as 57 percent of all farms. Furthermore these farms occupied a much greater share of agricultural land – in Germany 85 percent, in Sweden 87 percent, and in Great Britain 95 percent (Agricultural Situation in the EU, 2001). Concerning Polish farms’ connections to the market and their role in the structure of agricultural production, though individual subsistence and semisubsistence farms far outnumber the commercially oriented farms, the latter deliver 75 percent of the marketed agricultural output in Poland. According to the 1996 General Agricultural Census, in the middle of the 1990s only about 46 percent of individual farms produced for the market, above 33 percent produced largely for their own consumption, and about 11 percent produced only for their own consumption. There were also family farms which did not produce anything and relied exclusively on income from other sources. From among 986.000 farms that produced on the market, only 400.000 and thus about 20 percent of all farms in Poland could be considered as fully commercial farms reaching incomes allowing for investments and development (Wilkin, 2000d: 39)63. Dąbkowski (1999), following the data of 1996 agricultural census and on the basis of economic and sociological analyses, defined 3 subsectors in Polish agriculture:  Subsector I of the so-called ‘farmers by name’, in which farmers produce mainly or exclusively for their own consumption, or even do not farm their land64, includes almost 70 percent of farms in Poland and takes up 28,2 percent of the country’s agricultural land. This subsector employs 47 percent of full-time employees in agriculture and delivers only 4,7 percent of marketed agricultural output.

62

The share of the largest individual farms in agricultural land use was smaller – in 2001 individual farms occupied only 0,02 percent of UAA used by the private sector (Statistical Yearbook..., 2002). 63 According to the IERiGŻ’s calculations, the number of fully commercial farms which have potential for further development and could successfully compete with the EU farms is even smaller and amounts to 180.000 – 200.000. 64 The number of farms which did not produce anything, even for their own consumption, increased during the 1990s. In 1988 the share of non-producing farms amounted to 2,2 percent, in 1996 to 5,6 percent and in 2000 it was as much as 10,6 percent, i.e. about 200.000 farms (Rzeczpospolita, No. 147, 26.06.2002).

97

4 Polish agriculture in the transformation process  Subsector II of farms of a small scale of production, which sell only on local markets (about 20 percent of market agricultural output), includes 22 percent of all farms and takes up 30 percent of agricultural land.  Subsector III of commercial farming includes only 8,6 percent of farms in Poland, occupying 41 percent of UAA. These farms employ only 19,5 percent of the agricultural workforce and deliver almost 75 percent of the marketed agricultural output in Poland.

Basically, throughout the 1990s the subsector I and subsector III showed a tendency to expand. It contributed to growing polarization of the Polish farm structure65. In contrast to the smallest and largest farms, medium-sized farms were most exposed to unfavourable economic developments and more often ceased market operations, becoming subsistence farms. Consequently, the growing tendency to creation of new and small farms has weakened the desirable concentration, which began to ensue in Polish agriculture (Szemberg, 2001b: 221). Very bad situation on the land market made structural changes in Polish agriculture essentially more difficult. Prices for agricultural land remained very low and the transaction costs of land purchases significantly increased – at the end of the 1990s total costs of a purchase made up over 12 percent of the value of purchased land (Ziętara, 2001: 36). The number of land transactions has been small also because of divergent supply of land and demand for it. In contrast to the western and northern parts of Poland, where farm structure has been the most favourable and land supply large (megaregion II), in southern, south-eastern and central parts of the country (megaregions I and III), where the demand has been relatively high, the supply of land has been far more limited. The modernization and restructuring of Polish agriculture have also been substantially curtailed by a very bad situation on the rural labour market.

65

In the period between 1990-2000, the number of the smallest farms (1-2 ha) in Poland increased by 16 percent. In 1990 there were 378.000 individual farms in the size class between 1 and 2 hectares. In 2000 the number of the smallest farms increased to 448.000. At the same time, the number of medium-sized holdings between 2 and 15 ha as well as their share in agricultural land use decreased. The number of the largest farms, of area above 15 ha, increased by 30 percent, from 130.000 in 1990 to 189.000 in 2000 (Rolnictwo i gospodarka żywnościowa w Polsce, 2001).

98

4 Polish agriculture in the transformation process Increasing national unemployment and the downward trend in profitability of agricultural production greatly affected rural labour and land markets. Farmers, whose incomes declined more than half between 1990 and 2000, substantially reduced purchases of agricultural inputs and services, which in consequence has led to the reduction in off-farm employment in rural areas. Not surprisingly, the opportunities for creating new jobs in rural areas have proved to be far more limited than in cities or in larger towns. Also because of poor education 66 and lack of other qualifications, the majority of farmers have not seen an alternative to the work on a farm. The number of employed in agriculture de facto has not changed since the outset of the transformation. In 2002 the number of persons working in agriculture was lower only by 100.000 when compared with the data of the agricultural census of 1996. In addition, according to recent research of the Institute of Public Affairs, the number of persons declaring willingness to stay in agriculture has grown. Between 1999 and 2002 the proportion of farmers that saw their future in agriculture increased from 40 percent to 60 percent; at the same time the number of farmers who paid regular contributions to the farmers’ social security fund increased from 55 percent to 69 percent (Kolarska-Bobińska, 2002: 14). In the extremely unfavourable conditions for farming in the transition years, the overall bad macroeconomic situation and existing labour surpluses in rural areas, the system provided farmers and their families with additional and, in many instances, the only source of income67. At the same time, due to reported abuses and the applied single contribution rate, the existing system has been considered a considerable hurdle to structural changes in the sector68. Family farms in Poland have become de facto repositories of a superfluous workforce. In general, the agricultural sector, and specifically family farms, have been playing the very 66

In 1996 almost 52 percent of economically active persons in agriculture had primary or uncompleted primary education; 28,4 percent had basic vocational education, 16,5 percent general secondary education, 1,3 percent post-secondary education and 2 percent higher education (Woś, 1998: 41) 67 The system has been clearly beneficial to farmers mainly due to relatively low contributions paid by farmers to the fund. Contributions to the Farmers Social Security Fund (KRUS) have amounted only to about 18 percent of that paid to the regular pension system – ZUS, though both systems have offered similar welfare benefits (Boss-Rolnictwo, No 27, 7.07.2001, p.9) 68 The functioning social security system not only created incentives for farmers to stay in agriculture and to keep their farms, but also encouraged other people to become farmers. Persons that were establishing new farms did not have to fulfil any specific requirements and could automatically be included to the farmers' social security system.

99

4 Polish agriculture in the transformation process important role of a social buffer or a ‘safety net’ during transition, taking up surplus labour from other sectors of the economy. Currently, the rate of hidden unemployment on family farms is estimated at about 900.000 persons. Especially in small-scale farms to 5 ha every fourth worker was superfluous (Frenkel/ Rosner, 2001: 142). This situation has had an important impact on the differentiation of sources of farmers’ incomes. Only for about 60 percent of farmers is farming the main source of their income. At the end of the 1990s, the number of farmers declaring that working on their own farm represented the major source of their income was even smaller and amounted to about 53 percent. About 20 percent of farmers have indicated working outside their farms as the main source of their income. Furthermore, as already noted, a relatively large proportion of farmers has been dependent on social security payments. In the case of the overall rural population, this dependence was particularly great. Table 4.4 Sources of rural population’s income (in percentage) What is the main source of your family’s income? Rural population

Farmers

Source of income

2002

1999

2002

1999

Work on own farm

23

24

60

53,5

Work outside farm

36

35

22

20

Own business

5

6

3

6

Pension, old pension or allowance

31

34

14

20

Others

5

1

1

0,5

Source: Kolarska-Bobińska, (2002: 8).

Overall, the strong subsistence orientation and deficiencies of land and labour markets substantially limited the possibilities for improving the farm structure in Poland. Furthermore, a very strong subsistence orientation characteristic for Polish agriculture seemed to continue in the specific conditions of economic transformation.

4.3.3

Agricultural production and profitability

Agricultural production significantly declined during the first transformation 100

4 Polish agriculture in the transformation process decade. By the end of the 1990s the global agricultural output was lower by around 10 percent when compared to the period before the transition (Woś, 2001: 26)69. The drop in agricultural production was prompted by the precipitous decline in the demand for domestic agri-food products induced both by the decreased purchasing power of consumers as well as by increased food imports. Additionally sectoral terms of trade (input prices relative to output prices) have shown strongly negative developments for farmers. Prices for basic agricultural inputs have been rising much faster than prices for agricultural products. Table 4.5 Sectoral terms of trade (1990=100) and rate of inflation (percentage change of yearly average over the previous year) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Input prices

100

178

240

327

410

512

617

705

772

828

922

Output prices

100

129

207

274

376

478

553

605

606

595

683

Terms of trade

100

73

86

84

92

93

90

86

79

72

74

43,0

35,3

32,2

27,8

19,9

15,0

11,8

7,2

10,1

Rate of inflation

585,8 70,3

Source: European Commission (2002e: 13), European Commission (1997c: 119), European Commission (2002f: 34).

Consequently, agricultural profitability and farmers’ incomes declined considerably. Despite the decline in the level of agricultural production and agricultural profitability, there were constant food surpluses throughout the 1990s in Poland. Except for single years of crop failures (1992, 1994), domestic food supplies in the 1990s far exceeded food demand (Gruda/Kowalski, 1998: 113122). Following changes in the level of production, the structures of global and market agricultural output have also changed. In general, during the last decade agricultural production shifted somewhat towards crop production, which required relatively less investment, while animal production, earlier heavily subsidised by the communist state, lost its importance both in the structure of global and market agricultural outputs70. Notwithstanding, agricultural production has not become 69

In other transition countries, a decline in agricultural production has also been noted. As Swinnen stresses “all CEECs have gone through an initial output decline, later on, however, output evolutions in CEECs due to different developments in general economy and differing labour productivity in agriculture, have diverged” (Swinnen, 2000: 2-3). 70 The share of crop production in the structure of global agricultural output in 1990 amounted to 50,6 percent, in 1995 to 58,6 percent and in 2000 to 53,2 percent, while animal output amounted respectively to 49,4 percent, 41,4 percent, and 46,6 percent. However livestock production has a larger share in the market agricultural output than crop production. In 1990 animal production

101

4 Polish agriculture in the transformation process more profitable and the economic situation of farmers has been constantly deteriorating. There have been important structural limitations on increasing agricultural profitability. As highlighted in previous sections, general structural conditions for farming have not changed. Farm structure remained fragmented and the structure of productive assets unaltered. The structure of productive assets, characterised by quite abundant endowment with land and labour and relatively low endowment with capital, has not fostered productivity increases. Capital, being relatively expensive, has been substituted by much cheaper land and labour. Since basically agricultural production elsewhere in the developed countries has been capital-intensive per worker, this substitution resulted in a very low level of productivity of labour and of agricultural land (see Poulquin, 2001). In 1996 almost 23 persons per 100 ha of agricultural land were employed in Poland, ten times more than in the EU-15. Additionally farm labour in Poland remained far less mechanised. As a result agricultural labour productivity in Poland has been substantially lower than in the EU. In 1996 it accounted for only about 15 percent of the EU-15 average (Poczta, 1999)71. Additionally, labour productivity in agriculture further declined at the end of the 1990s when compared with productivity in other sectors of the Polish economy72. Similarly, land productivity in Poland has been far below the productivity in the EU. Polish farms have produced extensively on relatively poor soils and with little use of production technologies (as e.g. yield increasing inputs). Mineral fertilization has been on average one and half times lower than in the EU. Consequently Polish farmers have been attaining far lower grain yields, similar to those attained by

constituted almost 67 percent of market agricultural output while crop production constituted 33 percent. In the period between 1990-2000 this relation has slightly changed in favour of crop production – in 2000 the share of crops in market output increased to 37 percent and the share of animal output decreased to 63 percent (Statistical Yearbook of the Republic of Poland, 2002). 71 Labour productivity in Polish agriculture has been considerably differentiated on a regional level. Western and northern voievodships have been characterised by the highest labour productivity (in 1996 between 30 and 43 percent of the average labour productivity in the EU), and southern and eastern voievodships by the lowest (between 5 and 7 percent of the Union’s labour productivity) (Poczta, 1999). 72 Labour productivity in Polish agriculture in the years 1992-1994 measured by value added per person employed accounted for 23,3 percent of the level of productivity in non-farm sectors; in the years 1997-1999 labour productivity in agriculture accounted for about 14 percent (Czyżewski/Grzelak, 2002: 62).

102

4 Polish agriculture in the transformation process German or French farmers at the turn of the 1960s and 70s73. The distance between Poland and the EU-15 in terms of the overall productivity as measured by the level of the Net Value Added (NVA) per hectare has been then quite considerable. In 1999 NVA per hectare level in Poland reached only 21 percent of the EU-15 level. Table 4.6 Economic accounts for agriculture (million euro, at basic prices) Specification

EU-15

Denmark

France

Germany

UK

Poland

1999 Total Agricultural Output 273.658 7.722

62.929

41.612

24.147

10.884

Intermediate

129.963 4.579

31.591

24.549

13.249

6.625

Gross Value Added at 143.695 3.143

31.338

17.062

10.898

4.258

23.677

9.913

7.291

3.103

790€/ha

578 €/ha

451 €/ha

Consumption

Basic Prices Net

Value

Added

at 107.217 2.063

Basic Prices NVA/ha

800 €/ha 769 €/ha

170 €/ha

Source: European Commission (2002e: 11) and Agriculture in the European Union (2000, 2001).

However, efficiency in agriculture is quite differentiated also in the individual member states of the EU, starting from quite low levels noted in Sweden and in Finland to levels closer to the EU average as in Denmark and France, and to a very high level noted in the Netherlands (3.239 €/ha). More important constraint on increasing agricultural profitability in Poland has resulted from the fragmented production structure. Throughout the 1990s no major concentration as well as specialization in agricultural production has ensued. Market-oriented farmers, owing to the unstable situation on domestic agricultural markets, have not been prone to develop specialised production and decided to keep several production lines or even intentionally diversify production to overcome potential slumps on individual agricultural markets (Rolnictwo i gospodarka żywnościowa w Polsce, 2001). Also, although some processes of 73

E.g. wheat yields in Poland amounted only to 35 dt/ha in 1999, while in France to 74,1 dt/ha, in Germany to 75,5 dt/ha, in Denmark 70,1 dt/ha, and in United Kingdom to 80,5 dt/ha (Slovak, Czech, Hungarian, Latvian, Polish, Romanian and Slovenian Agriculture in Comparison with EU Countries, 2001).

103

4 Polish agriculture in the transformation process concentration and specialisation of production as well as food quality improvements have started74, still a larger share of farms in Poland have a mixed production profile, combining crop production with livestock or producing several crops. Overall, throughout the 1990s Polish farms (except for some large-scale and specialised agricultural holdings that represent only 0,1 percent of all farms in Poland) have been in a very poor economic situation. In 2000 agricultural income in Poland was lower by over 60 percent when compared with the 1990 level (European Commission, 2002e: 11). At the same time farmers’ incomes declined far greater than did the incomes of other socio-economic groups. At the end of the last decade, family farms received incomes lower by 44 percent when compared with non-farm households. It has been estimated that only farms of a size at least 20 – 30 ha have received parity income, i.e. income comparable to the average income received outside agriculture. Not surprisingly, the difference in income levels between Polish and EU farmers has been far greater. E.g. in 1996 the average income of a family farm in Poland was 7 times lower than the average income of a family farm in the EU-15 (European Commission, 1998b: 55). This great difference between agricultural income levels in Poland and the EU has resulted not only from generally far worse economic conditions for farming and the unfavourable farm structure in Poland but also from lower subsidies granted to Polish farmers.

4.3.4

Downstream and upstream sectors

The development of agriculture, and especially of market-oriented farms is contingent upon the development and appropriate functioning of other elements of agribusiness located in upstream (supplying agriculture with inputs and services) and downstream sectors (processing industries and units dealing with turnover of agri-food produce). The transition to a market economy required substantial reforms and reorganisation in agribusiness, specifically privatisation of up and 74

E.g. the number of sugar beet producers decreased four times, at the same time a relatively strong group (50.000) of market oriented farms in grain production has emerged. Furthermore, an increase in the number of farms specialised in pork production has been noted (Rolnictwo i gospodarka żywnościowa w Polsce, 2001).

104

4 Polish agriculture in the transformation process downstream industries, development of new market institutions in agriculture’s environment, such as wholesale markets, exchanges, marketing organizations, management and market information systems as well as strengthening links between individual elements of the agri-food chain. The situation in the down and upstream sectors and the issues of integration in the agri-food chain will be briefly surveyed in the following. Considering the upstream sector, the biggest difficulties resulted from the deficiencies in the rural financial system. The rural financial system in Poland comprises two sectors – the state-cooperative Bank for Food Economy (BGŻ SA) and cooperative banking. The restructuring of the rural banking sector in Poland has encountered serious problems due to slow privatisation processes of the BGŻ and a very high number of small cooperative banks. Additionally, the first attempt to restructure rural banking was taken up only in middle of the 1990s. In order to improve the financial condition of rural banks, capital thresholds were introduced and government interventions by capitalisation of the central bank were carried out. In 1994 there were as many as 1.664 cooperative banks, of which the majority was inefficient. In 1997 the number of cooperative banks still was very high (1.322). Only at the end of the 1990s, following new provisions on the rural financial system, did the process of concentration in cooperative banking system occur. At the end of 1999 there were already 781 cooperative banks in a relatively good financial condition (Klank, 2001: 63). However, basically the condition of cooperative banks as well as of the BGŻ was very poor in the 1990s, which fundamentally limited their role in modernisation and restructuring of the Polish agricultural sector. At the same time the downward trend in agricultural profitability significantly reduced farmers’ demand for financial services. Due to high costs of credits, depressed incomes and high uncertainty as to future income level, they essentially have not made use of financial services offered by banks. At the end of the 1990s only about 12 percent of farms in Poland were taking bank credits and at the same time more than 80 percent of credits taken by farmers were short-term (Wilkin, 2000d: 51). Another important elements of agribusiness are food processing enterprises (downstream sector). Generally the food industry in Poland has gone 105

4 Polish agriculture in the transformation process through rapid and fundamental changes with regard to ownership, market organization and production structures during the first decade of the transition process. Numerous small and medium scaled processing enterprises which emerged in the early years of transition were subject to intensive concentration processes in the following years. Unlike agriculture and the rural banking system, the food industry attracted significant amounts of foreign investments throughout the 1990s. The first major flow of foreign direct investment to the food industry in Poland took place between 1991-1992, and between 1993-1995 investments in the sector doubled75. In the 1990s almost all food industry companies were privatised and modernized. Already in 2000 about 90 percent of the food industry was in the hands of private companies76. Fast privatization, restructuring and technology transfers, in which foreign capital played a pivotal role, have made the food industry one of the most modern and rapidly growing industries in Poland. Currently, the food industry gives employment to about 550.000 people (5,3 percent of total civilian employment) and contributes to about 4 percent of GDP (European Commission, 2002e: 22). Between 1993-1997 the rate of growth of food industry production amounted to as much as 10 percent per year. This was prompted by the changing structure of food industry output towards more processed,

higher-value-added

products.

Thanks

to

modernization

and

concentration processes, the overall efficiency and profitability of the food industry have somewhat increased when compared to the early transition years. However, still the level of profitability is very low in Poland, in particular in some primary processing sectors such as grain milling, meat and milk processing as well as in state enterprises of the sugar industries. When compared to the EU food industry, the Polish food industry is lagging behind both in terms of labour efficiency, profitability and products’ competitiveness on international markets. It 75

To the end of 2000, FDI in the food industry amounted to about 5 billion USD, which accounted for 10 percent of total FDI in Poland. Initially only branches that had minor significance for the whole food industry but ensured high returns attracted foreign investments. FDI were then primarily located in tobacco, beverages, concentrates, sugar and oilseed processing. In the privatisation processes of companies from meat, mill, feed, fruit and vegetables, and fish branches, mainly domestic investors were engaged, but at the end of the 1990s also foreign investors entered these markets (European Commission, 2002e: 23). 76 The remaining 10 percent of the food industry is comprised of not-privitized companies of sugar beet processing and spirit distilling. The privatisation in these companies encountered opposition on the part of farm lobbies and anti-reform political parties.

106

4 Polish agriculture in the transformation process is estimated that the level of efficiency of the Polish food industry accounts for about 40 percent of the EU level (Urban et al., 2000: 120). Additionally, the majority of food processing enterprises in Poland still face difficulties in meeting EU food quality standards, which limits their competitiveness on domestic markets as well as restricts their exports to EU markets. Ownership and organizational changes in the Polish food industry have not reinforced very needed integration between agricultural producers and food processing units. Generally the degree of both vertical integration77 and horizontal integration78 in the agri-food chain in Poland has been very low. Though integration in the agri-food chain has advanced since the beginning of transformation, it is still insufficient for a competitive agri-food economy. In the system of a centrally planned economy, farmers’ links with food processing were based on the system of contracting for basic agricultural products. Thanks to that, farmers had a guarantee of the outlets for their produce. Along with the system change, contracting broke down since the costs of maintaining procurement facilities were too high for processing industries. Additionally, the supply of agricultural products was not adjusted to the requirements of food processing units. The contracting system has been substituted by immediate purchases and only since the second half of the 1990s has the importance of contracting increased, in particular for large-scale processing companies. Farmers attempted to balance their weak market bargaining position in the agri-food chain against processors and traders by searching for the help of the state, specifically for guarantees of profitable sales at state procurement. They managed to improve their situation in some core markets (grain, milk, and pork). However, distortionary effects of state ad hoc interventions further limited market integration between farmers, processors and traders. Generally, farmers do not try to improve their situation in the agri-food chain by organizing themselves in producers’ groups or by creating other agricultural organizations. Currently only

77

Integration between agricultural producers and food processing units and integration of food processing units with the units dealing with distribution and trade of food products. 78 Integration between agricultural producers in a given market as well as integration between food enterprises in a given branch.

107

4 Polish agriculture in the transformation process about half of domestic agricultural production is used by the food processing industry. Also links between food processing and distribution (trade) have not strengthened throughout the 1990s. Basically, distribution channels remain underdeveloped in Poland. The primary role in distribution is played by large trade networks. In contrast to the EU, exchanges and wholesale markets still play a minor role in the turnover of agricultural products79. The processes of horizontal integration between food processing enterprises in individual food branches have been proceeding even more slowly than the processes of vertical integration. Different associations and cooperative associations that operated in the system of a planned economy ceased to exist in the new systemic conditions. The main role in horizontal integration in the sector is played by large capital groups which still have a smaller share in the market of given food products (Urban et al., 2000: 110). Consequently, agribusiness in Poland still lags behind the EU agribusiness both in terms of structure and performance. The dominant position of primary agricultural production, underdevelopment of market institutions in agriculture’s environment and very low levels of vertical and horizontal integration between individual elements of the agri-food chain are the major weaknesses of agribusiness in Poland. Agriculture and farmers remain the weakest element of the chain being loosely connected with food processing as well as with market and financial institutions. Disproportion in the structure of agribusiness and fragmented agricultural production and sales have increased the overall costs in the sector and negatively affected its competitiveness (Wilkin, 1998a).

4.3.5

Foreign trade in agri-food products

In the 1990s, the trade in agri-food products in total and with the EU in particular increased significantly. Poland developed strong trade relations with the EU countries and countries from Central and Eastern Europe, gathered in the CEFTA organization, which now remain her main trading partners both in general trade 79

Currently there are about 6-8 exchanges of a regional reach, however, they do not function as typical exchanges and are quite separated from each other. Exchanges in the Polish agri-food chain are considered as being more similar to auction houses, which carry out buying and selling transactions according to own regulations (Urban et al., 2000: 60-61).

108

4 Polish agriculture in the transformation process and in agri-food trade. In December 1991 the Polish government and the European Communities signed the Europe Agreement which provided for association and the creation of the free trade area within a period of 10 years. The agreement provided for more trade concessions for Poland and envisaged the principle of asymmetric liberalisation in the sphere of agriculture, which implied that the EU was to open its agricultural market for the Polish agri-food imports faster than Poland for the EU exports. Notwithstanding, granted concessions were basically restricted to relatively small import quotas while the major part of agricultural trade was protected by high tariffs. Similar trade agreements on agriculture have been signed also with the remaining CEECs. Despite the size of the agricultural sector and the existing food surpluses, Poland has become a net importer of agri-food produce in the 1990s. The deficit in agricultural and food products’ trade has been constantly growing since 1993. In 1996 the total trade deficit in the agri-food sphere reached its peak amounting to as much as 1,2 million USD. The main reasons for the negative balance in the sphere of agri-food trade have been imports of raw agricultural produce not grown in Polish climatic conditions. Though in the trade of agricultural products from temperate climates balance has been positive for Poland these exports could not offset the overall negative balance in agri-food trade in the 1990s. Between 1997 and 2000 the value of agricultural imports significantly declined, mainly due to increased levels of trade protection in Poland (Rowiński/ Wigier, 2001: 287). Basically, only with the countries of the Former Soviet Union (FSU) has Poland had a continuing positive trade balance in foodstuffs. The importance of the FSU for Polish agri-food exports has significantly increased during the 1990s and the demand of eastern markets has become a key factor for the development of the Polish agri-food exports. In 1991 about 11 percent of the Polish agri-food exports went to these countries and in 1996 as much as 40 percent (Guba, 1999: 19). However, in 1998 Polish agri-food exports were heavily hit by the Russian financial crisis and consequently at the end of the decade the share of FSU countries in Polish agri-food exports declined to about 23 percent. The domestic market was not able to absorb products previously sent to the FSU markets. At the same time, due to high quality requirements of the EU, this export did not find an 109

4 Polish agriculture in the transformation process outlet on the EU single market. The drop in agricultural exports to the eastern markets resulted also from the decreasing price competitiveness of Polish products against EU agricultural products destined to these markets, which, thanks to high export subsidies and higher quality, turned out to be more competitive. However, despite the fall in the Polish agri-food exports, the countries of this region are still important though less stable trade partners for Poland. At the end of the 1990s, about 60 percent of Polish agri-food imports came from the EU and CEFTA countries and about 57 percent of Polish agri-food exports went to this destination (European Commission, 2002e: 25). The EU market, due to its size, relatively high prices for agricultural products, small financial risk and traditional trade links, has been the most important and the most attractive market for Polish agri-food exports. However, the deficit in agri-food trade with the EU has noted the highest rate of growth. Between 1992 and 2000 Polish agri-food imports from the EU have more than doubled while Polish agricultural exports to the EU have increased only 1.4 times80. The deficit in trade with the EU concerned both raw agricultural products and processed products. Table 4.7 Polish agri-food trade with the EU 1992-2000 (in mio EUR, in current prices) Imports Total

Raw

Exports

Balance

Processed Total agr. Raw Processed Total

agr.

products

Raw Processed

agr.

products

products

1992

890

643

247

940

836

103

50

194

-144

1993

1.100

863

237

881

776

105

-219

-87

-131

1994

1.129

841

288

941

822

119

-188

-19

-169

1995

1.219

914

305

989

850

139

-230

-64

-166

1996

1.536

1.225

338

981

828

153

-582

-397

-185

1997

1.653

1.261

392

1.076

893

183

-577

-367

-209

1998

1.764

1.327

437

1.107

937

170

-657

-390

-266

1999

1.647

1.216

431

1.081

895

186

-566

-321

-245

2000

1.923

1.529

394

1.272

989

283

-651

-540

-111

Source: European Commission, (2002e: 27).

110

4 Polish agriculture in the transformation process

The high trade deficit in agri-food trade with the Union was partly due to high levels of agricultural protection in the EU and restricted access to EU agricultural markets. Fundamentally, the quota allocation envisaged in the association agreement of 1991 did not correspond to comparative advantages of Polish agricultural production (Piskorz et al., 1996). Furthermore, it turned out that Poland was not able to use in full all import quotas envisaged by the association agreement81. The other CEECs have faced similar difficulties. Not surprisingly, trade relations in the sphere of agriculture between the EU and the CEECs have been described as an example of the most extensive reverse asymmetry (Inotai, 1998: 165-166). The EU producers and exporters, supported by relatively higher subsidies, have turned out to be more competitive, both on domestic and international markets. Polish agri-food exports have had difficult access to the EU markets also because of high EU requirements regarding food quality82. Additionally, during the 1990s differences in prices for agricultural commodities between Poland and the EU countries decreased, and for some basic agricultural products like wheat, poultry and pork, prices increased even above the EU level. These developments combined with very low productivity in agriculture resulted in significant decline in the effective competitiveness of Polish agricultural production relative to the EU. Overall, the level of comparative advantages of Polish agri-food production over EU production has proved to be generally very low. Polish agriculture has been more competitive only in certain agricultural products, which have been labour intensive such as e.g. fruit and vegetables83. Additionally, specialisation predispositions of the Polish agri-food sector have proved to be smaller together with the increases in the level of processing (Guzek, 1999: 73). Consequently, in exports to the EU, less processed, 80

1992 year marks a new phase in the EU-Polish trade relations. Then the Interim Agreement of the Association Agreement covering all trade provisions, including the agricultural sphere, came into force. 81 As the major obstacles for full use of import quotas granted by the EU, the Polish government indicated complicated bureaucratic procedures concerning import contingents as well as the fact that the EU applied additional instruments of protection in the single market. 82 Already in 1993 the EU recognized Poland as a seat of classical swine fever. At the end of the decade, Poland has also been recognized as a country of high risk of BSE incidence. In 1998 the EU banned also Polish milk imports as not complying with quality standards. 83 For analysis of the international competitiveness of Polish agricultural products see i.a. Gorton et al. (2001).

111

4 Polish agriculture in the transformation process lower-value-added products still predominated. Though during the 1990s the increasing exports of processed agricultural products have been noted, they have mainly been destined to markets of eastwards-lying neighbours (Urban et al., 2000: 55). At the end of the 1990s, due to preparations to the accession to the EU, new trade agreements between Poland and the EU, including reciprocal trade concessions in the area of agriculture, were signed. In September 2000 the EU and Poland signed the so-called double zero trade agreement which provided for fair competition conditions through the elimination of both tariffs and subsidies in a wide range of product groups. The new trade agreement, called ‘double profit’ and signed in December 2002, included processed agricultural products into the system of reciprocal EU-Polish trade concessions. The new arrangements on agriculture covered almost all agricultural products, except for the most sensitive ones, such as cereals, milk and beef, for which tariffs were kept. Overall, ‘doublezero’ and ‘double profit’ agreements provided for the conditions for deeper trade integration between the EU and Poland’s agricultural economies in the last two years before planned accession. Notwithstanding, during the whole decade of the 1990s the EU-Polish agricultural trade was highly distorted through the use of high tariffs, quotas and other trade barriers.

4.4

Summary

Poland’s economy, thanks to liberalisation, relatively fast privatisation processes and steady GDP growth, stood out as one of the most successful and open transition economies in the 1990s. Agriculture, however, has remained profoundly handicapped by structural problems and compared unfavourably not only with EU agriculture, but also with agricultural sectors of other transition countries from Central and Eastern Europe. The above ten-year period of systemic transformation has not brought about fundamental changes in Polish agriculture. Likewise in the communist period, Polish agriculture proved to be highly resistant to systemic changes. Overall, divergent patterns of agricultural development in the countries of the Soviet bloc after the Second World War importantly influenced the pace of 112

4 Polish agriculture in the transformation process agricultural reforms during the transition to a market economy. Paradoxically, countries which collectivised agriculture have been generally more advanced in agricultural reforms than Poland. During the 1990s Polish agriculture was split into three main subsectors: large-scale and market-oriented farms, semi-subsistence farms and entiresubsistence as well as non-producing units. The unfavourable situation on rural labour and land markets and a continuing downward trend in agricultural profitability seemed to preserve this division in Polish agriculture. Low profitability of agricultural production has, in turn, been due to a combination of structural deficiencies such as fragmented farm and production structures, unfavourable workforce/land ratio, lack of capital and investments as well as relatively low levels of agricultural support. As a result, Polish farms have been much less profitable than EU farms. The weak results of agricultural transformation in Poland can also be associated with a kind of social and institutional impotence of agriculture and rural areas in Poland. The main barriers for the successful transformation of the Polish agricultural sector as well as for the process of EU integration are considered to result from poor functioning of the institutional sphere i.a. the range and the forms of connections with the market, participation of farmers in organisations, methods of doing business in agriculture. Additionally, Polish agriculture and rural areas have been lacking in social capital and social trust, which has essentially impeded restructuring and modernisation processes. Also the up and downstream industries which provide agriculture with basic agricultural inputs and services and deal with processing, distribution as well as with trade of agricultural products have remained underdeveloped. Only food processing, thanks to foreign investments, has been developing relatively well. There have been, however, important deficiencies in integration between individual elements of the agri-food chain. Tenuous links between agricultural producers and the food processing industry and wholesalers have encumbered the emergence of stabilised supply and demand in the Polish agri-food economy. All things considered, the Polish agriculture and food economy have been lagging behind the EU agri-food economy. The developments of the agri-food 113

4 Polish agriculture in the transformation process trade in the 1990s have revealed important weaknesses of the Polish agri-food economy relative to the EU. The unsatisfactory pace of structural changes combined with the decreasing price gaps on agricultural products between Poland and the EU resulted in a lesser competitiveness of the Polish agri-food production. The competitive production and export potential of agriculture has not developed during the first decade of transition since important elements such as efficient production structure, capital, technology and marketing organizations have been lacking (cf. Sosnowska, 2002). Structural deficiencies, inept policy of the state, the lack of a social base in rural areas needed for the market reforms and an unsatisfactory pace of changes in the organisational-institutional sphere of the agri-food economy show that the legacies of the communist period are quite enduring in Poland. The reform processes in Polish agriculture have been proceeding substantially more slowly than in other economic sectors and consequently agriculture became a thorny problem for transition politics as well as for the process of EU integration.

114

5 National preferences in Poland with regard to agriculture and its integration to the EU The previous chapter has shown the basic phases of agricultural policy developments after the Second World War, the economic importance of agriculture in the Polish economy and the economic situation in the sector on the eve of accession to the EU. As understanding of domestic politics is a precondition for the analysis of the strategic interactions among states, in this chapter Level II dynamics, agricultural policy formation and national preferences of Poland regarding the agriculture sector’s integration to the EU, will be analysed. The present chapter continues the considerations about the role of agriculture in Poland during transformation by taking a closer look at the underlying political conditions of agricultural policy formation. To explain the position of agriculture and agricultural interests in domestic politics, the social and political setting of agricultural policy-making and power relations between relevant domestic actors will be considered. This part of the analysis aims to answer questions about the strength of agricultural interests in Poland and their position in the Polish domestic politics during the transition years. In the second part of the chapter, interests of relevant domestic actors, national integration strategy and adjustment policy in the area of agriculture and agricultural policy will be considered. On the basis of the presented analysis, the crucial question about the national preferences of Poland regarding the agricultural sector’s integration to the EU will be answered.

5.1

Social and political setting of agricultural policy making in Poland

Farmers, representing a community of three million, have been one of the largest socio-economic groups in Poland. Since the early transition years, individual farmers have been able to articulate their aspirations and organise collective action in defence of their economic interests. The Polish farmers had a very well developed sense of their interests as agricultural producers and entered the transformation process relatively well organized. Basically, developments under communism have strengthened farmers’ feelings about the separate and specific

5 National preferences in Poland with regard to agriculture and its integration to the EU character of their interests. Negative experiences of the communist period, particularly the continuous threat of collectivisation, have largely shaped the social characteristic of Polish farmers. They were the only private owners in communist Poland and unlike other social groups they did not participate in state property. These two features have made for the distinctiveness of Polish farmers from the rest of post-communist society (Gorlach, 1990). Notwithstanding, the fact that Polish farmers have been relatively well organized has not resulted in strengthening social capital in rural areas. Polish farmers have been characterized by strong feelings of resentment and relatively great distrust of others and of state institutions. Such social characteristics has been determined not only by the negative experiences under communism but generally by overall negative historical experiences of the Polish peasantry, dated to the times of serfdom and of partitioned Poland (Grabowska/Szawiel, 2001: 152). Farmers’ organizations in the 1990s have pursued mainly political goals; there has been also a great deal of competition between them, which essentially has made the processes of social capital building in Polish rural areas more difficult. Instead of undertaking actions aimed at cooperation and at improving the economic situation in their closest environment, farm organizations preferred to resort directly to the state, demanding greater subsidies. Strong individual farmers' organisations existed in Poland prior to the systemic transformation. In 1981, in opposition to the communist regime, the Self-Governing Independent Trade Union for Individual Farmers 'Solidarity' (NSZZ RI) was created. On the other hand there were peasant parties and organisations coming from the communist establishment – the United Peasant Party (ZSL) and the National Union of Agricultural Circles and Agricultural Organisations (KZKiOR). The ideological divisions between farm trade unions, developed under communism, have been fixed in the new systemic conditions (Gorlach/Mooney, 2000: 276). Farmers have been represented by many different trade unions and rural political parties that either resorted to post-communist or post-solidarity roots. From the Solidarity of Individual Farmers, which spilt already in the 1980s, many small rural parties such as the Polish Peasant Party – ‘Peasant Agreement’ (PSL-PL) and the Peasant-Christian Party (SCh-L) emerged 116

5 National preferences in Poland with regard to agriculture and its integration to the EU at the beginning of the 1990s. Parties and farm trade unions of the postcommunist origin, the Polish Peasant Party (PSL) and the Agricultural Circles, remained undivided, both in terms of political programme and organization. In 1992 the third major agricultural trade union was created, Self-Defence (Samoobrona). Self-Defence competed with both Agricultural Circles and the Polish Peasant Party and with Solidarity of Individual Farmers and Solidaritybased rural parties. This new farm organisation has been presenting the most radical socio-economic demands; it also served as the basis for the creation of a political party of the same name. Basically, due to the same leadership and due to the lack of independency of the trade union, these two organisations formed one political entity. Overall, the rural community in Poland has been well organized. Not only the number of organisations was high but also the number of farmers and rural-area inhabitants engaged in individual organisations or peasant parties. At the end of the 1990s, the number of members of the KZKiOR was estimated at 1,1 million, grouped in 22.000 agricultural circles and in 24.000 circles of farmers’ wives. Also the PSL has been the biggest peasant party in Poland in terms of the number of registered members. The party has gathered about 140.000 members. The Trade Union of Individual Farmers "Solidarity", had about 400.000 members. Self-Defence also engaged a significant proportion of the rural community; however, the exact number of Self-Defence members was not known84. Despite the existence of several agricultural trade unions and rural parties, there were no significant differences between them in terms of socio-economic demands. Focused on sectoral interests, farm groups have been pressuring the governments for increased intervention on agricultural markets, the introduction of new sectoral benefits and for more protectionist trade policy. The existing divisions between major farm trade unions were mainly due to political reasons; farm trade unions have been associated with political parties coming from different political options. In the new systemic conditions, the tendency to form separate farm organisations further increased. As the political benefits of winning the rural electorate were quite considerable, the relatively large number of rural 84

According to the declarations of the party’s leader, Andrzej Lepper, at the end of the 1990s there were about 500.000 members in the trade union, and about 100.000 members in the political party

117

5 National preferences in Poland with regard to agriculture and its integration to the EU parties that emerged at the beginning of the 1990s was not surprising. There were about 10 million voters in rural areas, representing 40 percent of the overall electorate in Poland. The rural electorate proved to be particularly important for the post-communist PSL, which became a typical class party, winning support almost exclusively from farmers. Apart from the KZKIOR, the NSZZ Solidarity of Individual Farmers and Self-Defence, there have also been other agricultural organizations focused on defending specific sectoral or group interests: The Federation of Agricultural Employers, Leaseholders and Owners, The Trade Union of Agricultural Employees of the Republic of Poland, The Trade Union ‘National Centre of Young

Farmers’,

the

Federation

of

Agricultural

Producers’

Unions.

Notwithstanding, these organizations have had a generally smaller impact on the formation of agricultural policy in Poland. Basically, farmers’ economic organisations – branch associations, cooperatives and producers’ unions – have proved to be less important rural actors than traditional agricultural trade unions and rural parties. Apart from agricultural advisory centres, rural parties and agricultural trade unions, particularly the PSL, Agricultural Circles and SelfDefence have enjoyed the greatest trust of farmers (Fedyszak-Radziejowska, 2000b: 154). Due to the reluctant approach of farmers to cooperative activities, largely determined by the negative experiences of the communist period, cooperative organisations and producers’ unions have been developing very slowly in Polish agriculture. Consequently, Polish rural areas have suffered from the lack of an adequate level of social capital; such farmers’ general characteristics mentioned above, as resentment and lack of trust in others, have effectively locked farmers’ potential to cooperate and to improve the situation in their nearest environment85. Also the position of agricultural chambers (local agricultural government, established in 1995) has proved inferior in the structure

(Janicki, M., Miecik, I., Kombajn Samoobrona, Polityka, No. 8, 2003). 85 For an extensive analysis of the state of social capital in Polish rural areas see: Raport of stanie wsi 2002, FDPA, Warsaw 2002, and Supplement to No. 3 of the quarterly Wieś i Rolnictwo, (2003), Institute of Rural and Agricultural Development, Polish Academy of Sciences, Warsaw.

118

5 National preferences in Poland with regard to agriculture and its integration to the EU of agricultural institutions. Agricultural chambers have had narrow competencies and their role has been basically limited to opinion and consultative functions. All things considered, agricultural local governments and economic organizations of farmers such as producers’ unions, cooperatives and farmers’ associations, have been very weak and still numerically inferior. In the specific conditions of systemic transformation, rural parties, particularly the postcommunist PSL and agricultural trade unions, openly pursuing political aims, have fundamentally dominated the social setting of agricultural policy-making in Poland. These specific domestic arrangements increased the importance of political factors in the formation of Polish agricultural policy during the transformation years. The following section reviews the dynamics of agricultural policy formation in Poland between 1989 and 2002 and takes a closer look at the state-farmers relationships and at their impact on the adopted policy measures.

5.2 5.2.1

Agricultural policy formation 1989-2002 The post-solidarity governments (1989-1993)

Despite the fact that agriculture involved a significant proportion of the Polish labour force, state policy in this area was somewhat neglected in the first phase of the transition process. As highlighted in the previous chapter, since the outset of the transition process to 1994, subsequent Polish governments disregarded the needs for deeper reforms in private farming and did not elaborate any comprehensive and long-term programme of reforms in the sector. In the first stage of transformation, i.a. due to ideological reasons, the state de facto withdrew from pursuing active policy in the agriculture area and limited its activities to introducing basic market reforms – liberalisation, elimination of state subsidies in agriculture and privatisation in the state sector. At the beginning of the 1990s two important state agencies were established – in 1990 the Agricultural Market Agency (AMA) responsible for ensuring proper incomes for farmers and stabilising the situation on agricultural markets through intervention purchases and managing the stocks and in 1991 the Agricultural Property Agency of the

119

5 National preferences in Poland with regard to agriculture and its integration to the EU State Treasury (APA) responsible for restructuring and privatising state farms. Major instruments of a market support system, minimum and guaranteed prices, were introduced in 1991. It should be noted that Polish farmers entered the transformation process from a planned to a market economy with many expectations. At the outset of the transformation, during the Round Table talks in the spring of 1989, the representatives of private farmers gave their support for liberalisation and market changes (Wilkin, 1997). They hoped that the agricultural production that had been discriminated against under communism would have new opportunities for development and could reap greater benefits in market conditions. Of great importance was also the fact that the new system was to secure unrestricted private property rights to agricultural land and the abolition of size limits for farms. Farmers were also granted specific benefits related to the social security system and tax provisions. At the beginning of the 1990s, the separate social security system for farmers, 90 percent financed from the state budget, was established. Individual farmers were charged with small contributions to the retirement and pension system and, as the only active socio-economic group in Poland, have been exempted from paying income tax. Not only subsistence and semi-subsistence farmers but also farmers who have run larger farms have not been charged with income tax on revenue from agricultural operations. The tax burdens for farmers have included only a small land tax. However, market reforms soon exposed deep structural problems of Polish agriculture – a scattered agrarian structure, overemployment, and technical backwardness. The first negative effects of economic transformation highly influenced farmers’ attitudes towards the state and the market economy. Farmers have become the biggest opponents of market changes. Deprived of state support, they could not cope with the market and started regular protests against the postsolidarity government, demanding fundamental changes in agricultural policy. Because they were not represented in the first government formed after the fall of the communist system, farmers considered protest actions as the basic way for achieving desirable state intervention in agriculture. The first farmers’ protests

120

5 National preferences in Poland with regard to agriculture and its integration to the EU broke out in July 1990, only six months after the introduction of Blacerowicz’s plan for market reforms. Dissatisfied with the developments in the sector, farmers demanded from the post-solidarity governments more active policy in the agriculture area and continued massive protests, which reached a peak in the second half of 1991. Pressured by farm interest groups, the government decided in August 1991 to reintroduce some protectionist measures and restored tariffs for agri-food imports at an average level of 26,6 percent86. The following year also, most non-tariff barriers to agricultural imports were reintroduced. Farm organizations also demanded that the state undertake the task of debt restructuring in agriculture, i.e. granting state aid to farmers who had taken bank loans at the outset of transformation process and, due to drastic increases in credit interest rates, following introduction of variable interest rates in 1990, proved unable to pay them off. This issue became the basic incentive for the most indebted farmers to establish a new trade union, Self-Defence, that clearly distanced itself both from the post-communist and post-solidarity parties. The emergence of SelfDefence led to radicalisation of farmers’ protests; to change state policy in the agriculture sector, members of Self-Defence with its populist leader Andrzej Lepper at the head, undertook a number of illegal actions such as lynchings, road blockades and occupation of public utility buildings. Yet in October 1991 farm organisations and the then agriculture minister, Adam Tański, signed an agreement on debt restructuring in agriculture. Following the agreement with farmers, the government established a special fund on debt restructuring in agriculture in the middle of 1992. The state granted new aid for the sector by buying up and restructuring the liabilities of banks resulting from debts of farmers and food processing units. Additionally, the government has increased the importance of credit instruments in supporting agriculture; farmers have been offered preferential loans and subsidies to interest rates on bank credits and loans.

86

Such development of agricultural policy was characteristic not only for Poland, but also for most of post-communist countries of the region. The transformations in the agri-food sectors usually began with the introduction of entirely liberal policies, which, after some time, were replaced by more protectionist measures. For a comprehensive analysis of agricultural and trade policies in CEECs see e.g. Hartell and Swinnen (1997).

121

5 National preferences in Poland with regard to agriculture and its integration to the EU After the first fully democratic general elections of October 1991, the farmers’ community gained some political representation in the Parliament. Farmers supported

centrist

and

right-wing

political

parties,

coming

from

the

anticommunist opposition. The rural right-wing PSL-PL entered the coalition government, formed by many small post-solidarity parties. The party’s leader and the former activist of the Solidarity of Individual Farmers, Gabriel Janowski, was appointed Minister of Agriculture. However, due to budgetary constraints his programme of increasing intervention in agriculture and introducing subsidies for agricultural producers did not receive support from the rest of the government. Generally, the elaboration of consistent agricultural policy of the state proved difficult due to frequent government reshuffles87.

5.2.2

The SLD-PSL government (1993-1997)

The protests of farm interest groups finally faded after the general elections of 1993, in result of which the post-communist parties, the Democratic Left Alliance (SLD) and the rural Polish Peasant Party (PSL), seized power in Poland. The left wing PSL emerged as the major political representation of farmers. The presence of the PSL in the governing coalition proved an important factor for maintaining relative peace in rural areas. The new SLD-PSL coalition government embarked on the task of drafting the medium-term strategy for agriculture restructuring and agricultural development in Poland. In 1994 the Ministry of Agriculture and Food Economy prepared the complex programme for the sector ‘Guidelines for socioeconomic policy for rural areas, agriculture and food economy till 2000’. The major aim of the government programme was to the improve income situation of farmers and support structural changes in agriculture and in rural areas. The adopted programme broadened the aims of agricultural policy by making the development of rural areas an integral part thereof. The restructuring of agriculture was to be achieved by pursuing broad socio-economic policies which would have taken into account the needs of agriculture itself as well as its environment and rural areas (Wilkin, 1997: 124). At the beginning of 1994, the 87

Between 1992 and 1993, the government changed two times. Though Gabriel Janowski remained in the post of agriculture minister, changes of the government made the elaboration of

122

5 National preferences in Poland with regard to agriculture and its integration to the EU government Agency for Restructuring and Modernisation of Agriculture was established88. The SLD-PSL government consolidated intervention policy in agriculture and increased agricultural subsidies, mainly through preferential credits and interest rate subsidies on agricultural loans89. Notwithstanding, ad hoc interventions on agricultural markets continued to be the dominant feature of state policy in the sector. Market mechanisms in the area of agricultural products’ turnover were basically eliminated. In the years of relative bumper crops and low market prices, the Agricultural Market Agency was undertaking intervention purchases by prices generally much higher than market prices 90. The purchases were generally undertaken already in the times of harvest and the highest supply91. Additionally, they covered up to 90 percent of the registered market turnover. At that time, the government also increased protection against foreign trade; in 1994 Poland introduced an import tax and variable import levies that covered a range of farm products. In the middle of 1995, the government adopted a new law providing for the possibility of introducing supplemental customs duties on imports of chosen agricultural products, in case of too cheap or too excessive imports92. These policy measures led to a relative stabilisation of farmers’ incomes. However, despite increased agricultural expenditures and better border protection the situation in the sector did not improve. Agricultural policy was primarily concerned with the short-term protection of agricultural producers, disregarding the needs for long-term stabilisation in the sector. As a consequence, agricultural policy pursued by the state led to significant distortions on

long-term strategy for agriculture and rural areas especially difficult. 88 The Agency replaced the Agency for Restructuring and Debt Restructuring of Agriculture, which, due to bad management, was liquidated at the end of 1993. 89 E.g. Budgetary subsidies to preferential credits in agriculture and food processing rose from 150 million Polish zloty in 1993 to 1,37 billion in 1997 (Czyżewski/Grzelak, 2002: 58). 90 Since 1994 the Agricultural Market Agency was entitled to carry out intervention purchases at prices higher by 20 percent than minimum prices (Duczkowska-Małysz, 1998: 194). 91 That is from 15 July to 31 October. 92 As a signatory of the Uruguay Round Agreement on Agriculture, Poland and other WTO members were obliged to eliminate all non-tariff barriers such as variable import levies, contingents, reference and minimum prices, and to convert them into tariff rates and customs duties; therefore, the government decided to adopt a new law on supplemental customs duties under the WTO rules and Special Safeguard, for better protection of the domestic market against cheap or excessive agricultural imports.

123

5 National preferences in Poland with regard to agriculture and its integration to the EU agricultural markets (Seremak-Bulge, 2000)93. Moreover, the financial burdens imposed on the central budget significantly increased. As a result of constant rises in minimum and intervention prices, the budgetary outlays for intervention purchases between 1995 and 1997 were about ten times higher when compared with the years 1992-1994 (Ibid.). Overall, during the rule of the left-wing coalition government, the position of agricultural lobby in Polish domestic politics was consolidated. Not only did state policy in agriculture fundamentally depart from the liberal approach of the first Solidarity government, but clearly was moving towards a CAP-like regime.

5.2.3

The rule of AWS and UW (1997-2001)

The new right-wing government, formed by the post-solidarity Election Action Solidarity (AWS) and Freedom Union (UW) after the 1997 general elections, basically continued the agricultural policy of the previous government. State policy in the sector was additionally influenced by important external developments – preparations for the accession negotiations with the EU and the Russian financial crisis that broke up in the summer of 1998. The influence of the latter development on the situation in the Polish agricultural sector was particularly prominent. The Russian financial crisis resulted in a substantial reduction in Polish agri-food exports to eastern markets and deepened the slump in the sector. In 1998, an average farmers’ income amounted to only 40 percent of the average income in the other segments of the economy. At the end of the 1990s, 95 percent of farmers regarded the economic situation in agriculture as well as their own economic situation as bad or very bad (Wilkin, 2000c: 81). Additionally, the growing deficit in EU-Polish agricultural trade and the tough stance of the EU as regards the right of farmers from the transition countries to direct aid, as revealed during the internal negotiations on the EU Agenda 2000, increased the sensitivity of agricultural issues in Poland.

93

The greatest distortions occurred on cereals market, where the scope of the AMA’s interventions was the widest. With declining world prices on grain, very high prices for grain offered by the Agency led to substitution of the domestic grain supply with imports.

124

5 National preferences in Poland with regard to agriculture and its integration to the EU Not surprisingly, farm trade unions renewed protest activities and pressured the government for more interventionist price and trade policies. To strengthen their bargaining position against the government, farm trade unions decided to cooperate and organize common protest actions. Already in June 1998 major farmers' trade unions (Self-Defence, NSZZ ‘S’ RI, KZKiOR, The Trade Union of Agricultural Employees and others) signed an agreement on cooperation. By the end of 1998, major agricultural trade unions established the ‘Coordination Committee for the Change of the Government’s Socio-Economic Policy’94. Protests continued from summer 1998 to winter 1999. In the summer of 1998, the subject of major concern for farmers was related to low prices for grain and at the beginning of 1999 to low prices for pork. Furthermore, farmers demanded from the state a ban on subsidised agricultural imports from the EU. Trade unions extended their protest activities and undertook some more radical actions such as road and border blockades and destruction of already imported agricultural products. The most active and the most radical in the protests was Self-Defence. Its populist leader demanded that the government hold back market reforms, particularly that it stop privatisation processes in the agri-food sector and the preparations for EU integration. Basically, the majority of Polish farmers held similar anti-market position. Farmers expected from the state to become responsible for almost all aspects of the agricultural sector’s functioning, including fixing prices for farm produce, dealing with procurement and supervising the relations between food processing and agricultural producers95. The government responded to farmers’ pressures quite quickly and agreed to undertake all necessary measures to improve the situation in the sector. In February 1999 the AWS/UW government signed a special agreement with the peasant organizations establishing institutional dialogue between farmers' organizations and state institutions in order to improve the situation in agriculture and rural areas. However, Self-Defence as the most radical agricultural trade union, acting against domestic law, was not invited to the formal talks with the 94

This was quite new development on the rural political scene. During the protests from the first half of the 1990s agricultural trade unions were not prone to cooperate and tended to organize separate protest actions. For an extensive analysis of farmers’ protests in the 1990s and their dynamics see Gorlach (2001).

125

5 National preferences in Poland with regard to agriculture and its integration to the EU government and its leader rejected the negotiated agreement. Only the new agriculture minister, Artur Balazs, decided to include Self-Defence in the institutional dialogue between the government and farm organizations96. This decision proved to be a real turning point in state-farmer relations; agricultural say has significantly strengthened in Polish domestic politics and Self-Defence, incorporated into the institutional dialogue with the government, has somewhat changed the balance of power on the domestic political scene. As the general public held a positive attitude towards farmers, the government had some leeway as regards increasing the level of agricultural support. Likewise in Western Europe, farmers have been considered the mainstay of society and agriculture an important economic activity ensuring food supplies. Additionally, the specific developments during transformation, as a result of which farmers became one of the most disadvantaged groups of the post-communist society, increased public sympathy for farmers. The Polish public generally supported farmers’ claims addressed to state institutions to improve the economic conditions of farming in Poland. The majority of the public expressed understanding or even general acceptance of farmers’ protests97. At the beginning of 1999 about 65 percent of the general public held the view that agriculture should be protected and provided with support from the state budget even if it would entail an increase in food prices98. Overall, since the 1998/1999 protests, Polish agricultural policy has been officially formulated in consultation with the main farmers’ trade unions. Furthermore, after the coalition of AWS-UW fell apart in September 2000, the minority AWS government responded to farm-lobby demands more quickly, being afraid of a possible outbreak of farmers' protests and social tensions in rural areas. The government committed itself to an increased level of state support for agriculture and accepted major demands of farm interest groups: cutting off 95

The results of the survey carried out by the Institute of Public Affairs in 1999. Artur Balazs - the leader of the Conservative-Peasant Party, part of the AWS election coalition who himself was a farmer, was appointed Agriculture Minister in March 1999. 97 However with strong disapproval for methods used by farmers, i.e. road blockades. At the time of farmers’ protests in the summer of 1998 about 45 percent of the Polish public considered them as fully justified, 41 percent as partly justified and only 6 percent held the view that farmers’ protests were fully unjustified. See: Roguska (1998). 96

126

5 National preferences in Poland with regard to agriculture and its integration to the EU subsidised food imports from the EU, increasing support for agri-food exporters to Russia, higher intervention prices on the pork market, greater government intervention in milk and grain sectors and rescheduling credit repayments for farmers. As a consequence, state intervention in agriculture and protection of domestic producers against agricultural imports increased considerably99. Greater responsiveness of the Polish government to agricultural issues and farmers’ demands was also reflected during the negotiations with the EU on agricultural trade liberalisation. During the talks on the double-zero agreement, providing for the elimination of tariffs and subsidies on certain agricultural products, the Polish government presented a very tough position and signed the agreement as the last candidate country. Yet, in 1999 the government and agricultural organizations started to work together on the Pact for Agriculture and Rural Areas, which was officially adopted in September 2000. The Pact, together with the ‘Medium-term Strategy for Agriculture and Rural Areas Development’ of 1998 and the government programme document ‘Coherent structural development policy for rural areas and agriculture’ adopted in July 1999, formed the basis of Polish agricultural policy. The new policy was based on four main pillars: -

agriculture and its environment,

-

development of entrepreneurship and creating off-farm employment in rural areas,

-

integrated social policy for rural areas and development of rural environment,

-

partnership and social dialogue (Pact for Agriculture and Rural Areas, 2000).

98

See: Roguska (1999). The rises in tariffs to the level of WTO bounded tariffs were introduced two times, at the beginning of 1999 and in autumn of 1999. E.g. the tariff on wheat, of 3 percent in 1998, increased in 1999 to 27,5 percent; the tariff on butter increased from 40 percent to 112 percent, the tariff on pork increased to above 83 percent (Agricultural Policies in Emerging...., 2000). Also the budgetary expenditures devoted to covering the costs of the activities of the Agricultural Market Agency and the Agency for Restructuring and Modernisation of Agriculture rose considerably in the years 1999 and 2000 when compared with the year 1998 (see: Table 5.1). 99

127

5 National preferences in Poland with regard to agriculture and its integration to the EU The Pact envisaged a significant increase in budgetary outlays for agriculture and rural areas. The share of expenditure on agriculture (without the expenditures of a social character) in total budgetary expenditures of the state in 1999 amounted to 2,2 percent and by 2000 almost to 3 percent (Rolnictwo i gospodarka...., 2001). Also the structure of budgetary transfers to agriculture began to change; expenditures supporting progress in agriculture, which in the middle of the 1990s still absorbed a great deal of budgetary resources, were reduced. Instead, the share of expenditures for rural development (ARMA) and market support (AMA) rose between 1999 and 2000. Basically, the changing structure of budgetary outlays for the sector reflected the greater attachment of the government to the issues of rural development100. Table 5.1 Budget for agriculture and Agricultural Social Security Fund in 19962000 ( in million euro, and as % in total)

a) Progress in agriculture b) ARMA

1996 mio.€ % 253 8,0

1997 mio.€ % 274 7,9

1998 mio.€ % 256 7,1

1999 mio.€ % 125 3,3

2000 mio.€ % 116 2,6

114

3,6

128

3,7

144

4,0

229

5,9

288

6,5

c) AMA

86

2,7

105

3,0

83

2,3

118

3,0

184

4,2

d) Other

394

12,5

428

12,3

409

11,4

234

6,1

293

6,6

Agriculture (total a-d) Agricultural Social Security Fund TOTAL

847

26,9

935

26,8

892

24,7

706

18,3

880

20

2.302

73,1

2.549 73,2

2.715

75,3

3.150

81,7

3.483

3.607

3.149

3.857

3.530 80

4.410

Source: European Commission (2002e: 28). a) Progress in agriculture includes: biological progress, plant protection, extension and veterinary services, other services; b) Agency for Restructuring and Modernisation of Agriculture – subsidies to interest rates on credits, investment credits for farmers and food processing, other investments in agriculture and rural areas aimed at modernisation, creation of off-farm employment and development of infrastructure; c) Agriculture Market Agency - market support and stabilisation measures; d) Agriculture related expenditure by local governments and other expenditures on rural development.

100

Greater attachment to the issues of rural development was also manifested in the change of the official name of the ministry of agriculture at the end of 1999 from the Ministry of Agriculture and Food Economy to the Ministry of Agriculture and Rural Development.

128

5 National preferences in Poland with regard to agriculture and its integration to the EU At the same time, the role of social payments in the structure of budgetary outlays for agriculture was strengthened. The increased level of social expenditures allowed partial relief of social tensions in rural areas due to economic restructuring. Since the beginning of the transformation process, social spending in agriculture increased by 9 times and state expenditures for the Farmers Social Security Fund have made up about 11 percent of total budgetary outlays.

5.2.4

The SLD/UP/PSL government

Since 2001 agricultural interests have begun to feature even more prominently in Polish domestic politics. As a result of the 2001 general elections, a record number of parliamentary seats fell to active farmers101. The new centre left-wing coalition government was formed by the Democratic Left Alliance (SLD)/Labour Party (UP) and the Polish Peasant Party (PSL). The PSL leader Jarosław Kalinowski was appointed Agriculture Minister. The basic guidelines for agricultural policy, agreed to in the coalition agreement signed in October 2001, included: -

further expansion of interventionist policy on agricultural markets,

-

real growth of agricultural expenditure from the national budget within the two following years,

-

ensuring sufficient financial means in the national budget to use in full EU aid for Polish agriculture,

-

preservation of existing sectoral benefits (such as the preferential social security system and super-reduced VAT rates for food) and of benefits for inputs to agricultural production as well as for building materials till the end of 2002,

101

A significant proportion of the newly elected parliamentarians has been either directly or indirectly connected with farming. 52 parliamentarians out of 460 have had their own farms or farms belonging to their closest family, most from Self-Defence and the PSL (Poczet posłów polskich, Gazeta Wyborcza, 20-21 October 2001: pp. I-VIII).

129

5 National preferences in Poland with regard to agriculture and its integration to the EU -

launching the production of bio-fuels in Poland102. Furthermore, due to the pressures of the Polish Peasant Party, the new

government adopted a directive concerning the ongoing accession negotiations with the EU. The directive has linked Poland’s membership in the EU with full integration of the Polish agricultural sector to the CAP. Overall, with the PSL as the junior coalition partner, the government policy on agriculture has largely been guided by the demands of the powerful farm lobby. Greater sensitivity of rural issues in Polish domestic politics was also due to increased competition between rural parties and agricultural trade unions, which started to compete with each other again after the 1998/1999 common protest actions. The PSL entered the ruling coalition; however, it did worse than Self-Defence in the 2001 parliamentary elections. Self-Defence has won the third position in the Sejm, after the SLD-UP election coalition and the Civic Platform (PO). The political position of the PSL, which had been enjoying an almost monopolistic position in rural areas, became endangered. Self-Defence and the PSL continued to fight with each other to gain a dominant position in rural areas and to be considered the main representative of farmers’ interests in Poland. The rural electorate, as most affected by negative economic consequences of the transition process, has been particularly susceptible to populist political appeal. Therefore, growing competition between rural political parties has led to the radicalisation of their socio-economic postulates, both as regards domestic policies and the policy of integration to the EU. To have the overall picture of the formation of Polish agricultural policy, the following table summarises key developments between 1989 and 2002 and their impact on the adopted policy measures.

102

Rzeczpospolita, No. 237, 10 October 2001.

130

5 National preferences in Poland with regard to agriculture and its integration to the EU Table 5.2 Dynamics of agricultural policy formation in Poland in the transition years External developments

Domestic developments

1989

fall of the communist regimes in the CEECs

farmers’ agreement to market changes

1990-1993

Europe Agreement between Poland and the European Communities (signed in 1991, trade part of agreement in force since March 1992)

first round of farmers’ protests (1990-1993) significant decline in demand for domestic agricultural products, decline in agricultural profitability and in farmers’ incomes, growing trade deficit in the agri-food sphere

restoring protection to farmers (1991-1993): introduction of price support system, increased trade protection, the creation of state agencies responsible for the implementation of agricultural policy [AMA, APA, and agency dealing with debt restructuring in agriculture, future ARMA]

1994

Poland’s application for EU membership (1994)

the left-wing coalition government with the rural PSL as the junior coalition partner (1993-1997)

increased level of protection in major agricultural markets, expansion of credit subsidies, introduction of additional trade policy instruments (import tax 1994; variable import levies 1994-1995), supplemental customs duties

Signing the Uruguay Round Agreement on Agriculture (URAA) (1994) 1995-1997

Major policy measures market reforms: liberalisation of prices and foreign trade, removal of state subsidies to agriculture, privatisation of state farms, food industry, creation of market institutions granting social and tax preferences for farmers

the consolidation of agricultural lobby position in domestic politics

1998

Russian financial crisis; the launch of the accession talks with the EU (1998)

1999-2000

EU member states’ opposition as regards the coverage of Polish farmers with all CAP instruments Negotiations with the EU on new trade agreements the in agricultural sphere (1999-2002)

sharp farmers’ protests (1998/1999) decline in agri-food exports on eastern markets; dramatic decline in farmers’ incomes common protest actions of major agricultural trade unions

increased competition between farm organisations and rural parties (20002002)

131

increased border protection, higher intervention prices in grain and pork markets, greater role of social payments adoption of the Pact for Agriculture and Rural areas, start of preparations for the EU accession negotiations

5 National preferences in Poland with regard to agriculture and its integration to the EU 2001-2002

Final accession talks in the agriculture chapter

entrance of the PSL to the coalition government with SLD/UP (2001) strong agricultural lobby in the Parliament

extension of the scope of sectoral benefits, the growth of budgetary expenditures for agriculture

Source: Author’s own presentation.

5.2.5

Summary: the sources of the strength of agricultural interests in Poland

At the beginning of the transformation process the role of farmers and agricultural lobbies in the formation of agricultural policy was rather small. The major factors shaping state policy on agriculture were of an ideological nature. The liberal approach of the first Solidarity governments was considered the best choice on the way to a market economy. However, the following years have seen increased activities of farm lobbies and vehement farmers’ protests. The role and political influence of farm organizations and peasant parties have steadily grown, winning at the end of the last decade a central position in the Polish political life. Why have agricultural interests featured so prominently in Polish politics during transformation? The first basic factor relates to the fact that farmers have been one of the biggest socio-economic groups in Poland and have represented a very important segment of the Polish electorate. The second major source of power of agricultural interests has been in the specific institutional and political arrangements.

Farmers

in

post-communist

Poland,

being

numerically

preponderant, have seemed equally efficient in political terms as farmers in western economies. In the conditions of the democratic system’s formation, the role of major representative of the farmers’ community was seized by narrow interest groups and rural political parties that wished to either come into being or survive on the Polish political scene. Since the very beginning of the transformation process, there have been many agricultural organizations that have pursued both economic and political aims. Despite the fact that there have been several farm trade unions and that their leaders tended to compete rather than to cooperate, farm lobbies proved very efficient in securing government intervention 132

5 National preferences in Poland with regard to agriculture and its integration to the EU in the sector. Major Polish farm trade unions have had strong links with individual political parties, which represented different political options. Consequently, farm interest groups were represented in the subsequent governments regardless of changing sets of ruling political options. The NSZZ of Individual Farmers has generally supported the right wing, Solidarity-based peasant and nationalist parties. The other major farmers’ trade union, Self-Defence, has been directly linked with the political party of the same name, which so far has not entered any of the ruling coalitions, but politically gained in importance at the end of the 1990s. The largest farm trade union, the left-leaning Agricultural Circles, has been the backbone of the post-communist Polish Peasant Party. Additionally, specific developments in the Polish party system in the 1990s strengthened the position of the major peasant party, the PSL. The role of the PSL has been greater than one would suppose, given its rather weak performance in parliamentary elections. The PSL entered the ruling coalitions twice since 1989. The party co-ruled with the same left-wing coalition partner. However, being strongly oriented towards administrative posts in central government and in government agencies, it was and is open to form coalition governments with different political parties, both left and right-wing. This has given the PSL the traits of a typical pivotal party which is able to tip the balance on the political scene. The third major source of the strength of agricultural interests in Poland was a generally positive attitude of the Polish public towards farmers and public consent to increased agricultural protection. The Polish public supported farmers’ protests in the 1990s, was willing to accept higher food prices and considered that state support for farmers during the transition years had been insufficient.

5.3

Interests of domestic actors and the EU integration

National preferences of Poland regarding agriculture and its integration to the EU have formed in the strategic interaction between relevant societal and political actors – farmers, agricultural trade unions, food industry organisations, other economic agents operating in the agri-food sector, politicians and government

133

5 National preferences in Poland with regard to agriculture and its integration to the EU officials – acting in the framework of economic, political and social constraints. The previous section has given general insights on the structure of power relations and the dynamics of agricultural policy formation in Poland. The present section reviews the processes of national preference formation in the agricultural area by analysing policy preferences of relevant Level II actors specifically related to the issue of European integration and then by analysing the substantive national integration policy in the agricultural sphere. 5.3.1

Farmers’ attitude toward the EU

Most farmers have presented either strong euro-sceptic or clearly anti-EU positions. Farmers have been the only socio-economic group in Poland that as a majority has opposed the membership in the EU. Basically there has been strong dependency between the costs of economic transition for individual social groups and attitudes toward integration to the EU. The negative effects of systemic changes for Polish farms, the decline in agricultural profitability and incomes, combined with high market instability, deterred farmers from integration to the EU. Furthermore, a negative attitude of farmers towards the EU has largely been determined by the overall low level of knowledge on the EU and on the Common Agricultural Policy103. The specific social characteristics of Polish farmers – distrust, resentment and dominance of conservative attitudes – have also played a role. For farmers the EU accession implied substantial economic and organizational changes, visible from the first day of membership. They were to be included in the EU common agricultural policy and were expected to adjust their farming to complex EU regulations. The intensity of farmers’ fears related to the EU accession thus has been very high. Farmers have been most worried about the negative effects of integration to the EU on the condition of their farms. The majority of them held the view that many farms would not be able to compete with their EU counterparts and thereby would be forced to quit production. Not only small and non-specialised farms but also many commercial farms have been expected to face serious economic problems after the accession to the EU. 103

According to the research of the Institute of Public Affairs, between 1999 and 2002 as many as 85 – 90 percent of farmers considered themselves poorly or very poorly informed and not informed at all about the Polish agriculture integration to the EU (Kolarska-Bobińska, 2002: 28).

134

5 National preferences in Poland with regard to agriculture and its integration to the EU Another group of fears was related to possible changes in the framework conditions for farming – rises in land prices and new regulations limiting the freedom of production decisions. There have also been many fears of an emotional origin; farmers were particularly afraid that foreigners would begin to buy up Polish agricultural land after accession and that Polish people would have to work for foreigners. Table 5.3 Major fears of Polish farmers concerning the EU accession Fears - decline of many farms - flood of EU food on the Polish market - buying up of the Polish land by foreigners - more difficult sales for Polish agri-food products - rise in rural unemployment - limiting the volume of agricultural production in Poland - increase of poverty in rural areas

The percentage of farmers 84 80 79 73 72 66 65

Source: Roguska (2000: 202).

Overall, the beliefs about possible negative consequences of integration have been far more fixed and widespread than the beliefs about possible positive effects of agricultural integration. Despite the fact that agriculture after the accession to the EU was to be the most supported economic sector in Poland and farmers were to be the only socio-economic group receiving payments directly from the Union’s budget, the majority of Polish farmers continued to reject the membership in the EU104. However, one should note that interests of farmers, depending on their connections with the market, have been quite differentiated105. Due to the dual character of agricultural structures in Poland, two basic sets of farmers’ interests have emerged. Subsistence and semi-subsistence farmers, who have become quite dependant on direct transfers from the state budget, have primarily reckoned on the development of social measures easing difficult living 104

In the middle of 2002 about 57 percent of Polish farmers was against Poland’s membership in the EU, and only 29 percent of farmers supported the EU accession (Rzeczpospolita, No. 150, 29.06.2002). 105 As a reminder, the farmers’ community has been greatly differentiated as regards sources of incomes; farming activities have been the only source of income for only a small number. The majority has combined farming with other professional activities, or has made their living mainly from social payments, rents and pensions.

135

5 National preferences in Poland with regard to agriculture and its integration to the EU conditions in rural areas. The owners of very small farms and plots, as basically not participating in market turnover, have not been threatened by integration with the EU agricultural economy. The issues of production and trade-related measures have played a less important role for them. Generally, small and multifunctional farms, based on a traditional peasant economy, have been considered more stable and less dependent on changing market forces (Wilkin, 2000a: 144). However, farmers making their living mainly or exclusively from farming, i.e. mostly medium and large-scale individual farmers and owners of large agricultural holdings, the major actors of the country-wide protests in 1998-1999, have been particularly concerned about the planned integration to the EU (cf. FedyszakRadziejowska, 2000b, 2001; Podedworna, 2001). Table 5.4 Farmers’ support for Poland’s integration to the EU and the sources of their income (1999, in %) Sources of farmers’ incomes If an accession referendum took place now, Mainly AdditionalOnly from Not from how would you vote from ly from agriculture agriculture agriculture agriculture For Poland’s accession to the EU 13 21 30 31 Against Poland’s accession to the EU 49 49 44 35 I would not take part in the referendum 24 15 14 26 Hard to say 14 15 12 8 Total 100 100 100 100

Total

23 46 18 13 100

Source: Fedyszak-Radziejowska (2001).

It comes as no surprise that major expectations of market farmers making their living from farming have been related to the profitability of agricultural production and to market support instruments – output and input related support measures, strong protection of domestic agricultural markets in the pre-accession period, an adequate level of agricultural quotas and limits and full coverage with the CAP instruments after accession to the EU. In the area of agricultural land turnover, after accession to the EU the preferences of small-scale, medium- and large-scale farmers have been very similar. Basically, the whole farmers’ community opposed liberalisation in this area and expected that the government would introduce special safeguards protecting Polish agricultural land against foreign buyers.

136

5 National preferences in Poland with regard to agriculture and its integration to the EU 5.3.2

Agricultural trade unions

As highlighted in the previous section, farmers’ organizations and major agricultural trade unions have also taken an anti-EU stance106. Farm trade unions have been principally focused on defending the interests of medium and largescale farmers. Two groups of agricultural producers have been particularly represented by farm trade unions – producers of grains and pork. Though a larger part of grain production has not participated in market turnover, a strong group of about 200.000 grain producers emerged. At the end of the 1990s, producers of wheat and rye were supported with intervention prices higher than those granted to EU producers. Therefore, accession to the EU has meant for them a possible drop in incomes, particularly since the EU seemed not to agree to grant Polish agricultural producers direct income support107. Also pork producers, due to an expected rise in production costs and a fall of incomes, may find themselves in a difficult situation108. As farm lobbies defending the interests of grain and pork producers have become dominant on the domestic rural scene, their negative position on the EU accession has been particularly heard in Poland. Producers of beef and milk, who could have won most due to higher levels of price support under the CAP, have been quite dispersed and not well organized109. Furthermore, as shown in the previous chapter, most farmers in Poland have run nonspecialised farms, combining livestock and crop production. Overall, the specific structure of Polish agricultural production, its weaknesses and differing patterns

106

Only the National Council of Agricultural Chambers officially supported Poland’s integration to the EU in 1999, but soon withdrew its support. 107 Though other grain producers, that have not been supported by state intervention (corn, sorghum, barley), would benefit from the EU accession. 108 In contrast to the EU, pork production in Poland has been covered with intervention purchases. In the EU pork has not been covered with intervention, benefiting basically from export subsidies and subsidies to private storage of agricultural goods. There have also been other groups of producers in Poland that expected worse price conditions after the accession to the EU, e.g. poultry producers (Dąbrowski/Leszko, 2000). 109 Fundamentally, meat cattle breading has not been disseminated in Poland. Beef prices remained very low throughout the 1990s. Consequently beef production has been systematically declining; in 2002 it was lower by 65 percent when compared with the level of production in 1990. Milk production has occupied an important position in the structure of agricultural production in Poland; however, at the same time, it was quite fragmented in the 1990s. Yet in the middle of the 1990s small producers, having one - two cows, delivered about 70 percent of the overall milk output. The number of farms with milk cows amounted to about 1,3 million in 1996 and to 1 million in 2001. However, the concentration processes in the group of milk suppliers advanced

137

5 National preferences in Poland with regard to agriculture and its integration to the EU of support for farmers in Poland and in the EU have mobilised agricultural trade unions to increase their activities in the pre-accession period. Farmers’ protests and the manifest opposition of the Polish agricultural lobby to European integration were the basic means of pressure on the government to increase state support for farmers in the pre-accession period and to secure the economic interests of farmers during the accession talks with the EU. The anti-EU stance of major farm unions has also been determined by political reasons. Closely linked with individual political parties, Polish agricultural trade unions not only have been interested in securing the economic interests of market farmers, but have also pursued political aims. As already noted, their socio-economic demands related to national agricultural policy and to EU integration had become increasingly radical due to internal competition over leadership in representing farmers’ interests. Consequently, the domestic sensitivity of the issue of the Polish agricultural sector’s integration to the EU significantly increased. For populist rural leaders, accession to the EU and EU– related concerns of Polish farmers emerged as a convenient instrument for increasing political support in the domestic arena. Farm trade unions did not embark on the task of informing the farmers’ community about the real costs and benefits of the EU integration. They also used already very high social tensions, fears and prejudices for short-term political benefits110. Owing to the negative experiences of agricultural producers from the period of association with the European

Community,

such

a

strategy

proved

particularly

effective.

Fundamentally, parties making maximum demands and presenting an extremely nationalist position have had greater chances to win political support from farmers and rural-area inhabitants. It should be also noted that such an instrumental approach of rural leaders has further increased the negative attitudes of farmers towards European integration. rapidly at the end of the 1990s – in 1999 the number of milk suppliers amounted to about 600.000 and in 2002 to about 380.000 (Rynek Mleka. Stan i perspektywy, 2002). 110 Some trade unions have intentionally followed the policy of misinformation. E.g. the most radical farmers’ movement, Self-Defence, was advancing the thesis that Poland lowered its agricultural production by half on EU demand and was convincing farmers that accession to the EU would bring the decay of Polish agriculture (Boss-Rolnictwo No. 41, 13.10.2002).

138

5 National preferences in Poland with regard to agriculture and its integration to the EU Although agricultural trade unions have formally opposed EU integration, both to exert greater pressure on the government for state intervention in the sector and to increase political support domestically, they have started to seek representation in the European farmers’ organisations in the pre-accession period111. Clearly, the interests of farm trade unions have been different externally. Accession to the EU has offered the activists of agricultural trade unions opportunities for further strengthening their strategic position. Due to the very complex character of the CAP and a very developed agricultural administration in the Union, with a plethora of advising committees taking part in the formulation of EU agricultural policy, the role of national agricultural organisations was expected to grow.

5.3.3

Food processing industry

There have been also other important domestic actors that aimed to influence the state policy in the area of agricultural integration to the EU, namely food-industry organisations and representatives of smaller food-processing units. The Polish food industry took a position quite opposite to that of farm trade unions. Major food industry organisations have clearly supported Poland’s membership in the EU. The Polish Federation of Food Producers, comprising about 60 percent of Polish agri-business, has been one of the major spokesmen for fast accession to the EU. The positive attitude of the food industry towards the EU was due to expected benefits of economic integration, gaining access to a large EU market of 450 million consumers and to export subsidies. In contrast to agriculture, the Polish food industry has attracted substantial foreign investments and has undergone deep structural changes112. Food industry companies with western capital supported rapid and extensive trade liberalisation in the agri-food sector even in the pre-accession period. Furthermore, they supported full integration to the EU from the first day of accession. Thanks to large capital resources, technologies and access to know-how, they quite rapidly adjusted to EU standards 111

As a result of these efforts, in 2002 the leader of the largest Polish farm trade union, National Agricultural Circles, was appointed vice-president of the COPA/COGECA, the major organisation of the European agricultural lobby.

139

5 National preferences in Poland with regard to agriculture and its integration to the EU and did not seek any specific transitional measures113. Considering the conditions for production after accession to the EU, the food industry has been particularly interested in securing a high level of agricultural quotas and production limits. However, smaller food-processing establishments, in which there have been few foreign investments and in which adjustment processes have proceeded more slowly, have taken a more cautious position towards Poland’s accession to the EU. These establishments have mainly operated in basic branches like dairy, meat and fish. The majority of them have pressured the government to secure adequate transition periods needed for the required adjustment to EU food-quality standards. As not complying with EU standards, they had to reckon with banned access to the EU common market as well as to EU export subsidies. Establishments unable to undertake modernisation processes prior accession would have to cease operations. Nevertheless, most establishments decided to undertake the required reforms, both to have a prospect of being included in the large EU market and not to lose in competition with other domestic establishments complying with EU standards114.

5.3.4

Political actors and agricultural integration

Politicians and decision-makers have also had a vital interest in supporting the EU accession. Apart from political and economic arguments for the country’s integration to the EU, there have been important considerations of an administrative nature. Accession to the EU has involved the extension of possibilities for holding public office, both in domestic administration structures and in EU institutions. In addition, the role and position of non-elected officials 112

See: Chapter 4. Kozłowska A., Polish agribusiness does not want transitional periods, Boss-Rolnictwo, No. 24, 16.06.2000. 114 Concerning milk establishments, only about 18 percent of processing units did not decide to undertake modernisation efforts and agreed to cease operations after accession. The number of meat and fish establishments that proved unable to finance needed modernization was higher (about 40 percent). However, though the number of establishments forced to cease operations after the accession was relatively high, in fact, in many instances this decision has not been so dramatic. E.g. many meat establishments were divided into several units, each dealing with different phases of production – slaughter, partition, processing. The decision of liquidation often concerned one unit; the modernisation pressure exerted by the prospect of EU membership has then favoured specialisation in the sector (Rzeczpospolita, No. 120, 24 May 2002). 113

140

5 National preferences in Poland with regard to agriculture and its integration to the EU has been expected to grow significantly. The very preparations to accession have resulted in significant enlargement of public administration. Particularly in the agricultural sphere, the importance of domestic administration, due to the complexities of the CAP, is to significantly grow after accession. Effective implementation of the CAP mechanisms has required the reorganisation of existing institutions as well as developing new ones115. Accession to the EU has also had important consequences for decisionmaking in the agricultural area. The EU CAP was to replace national agricultural policies and absolve national officials from the responsibility of decision-making in this area. Fundamentally, only in the agricultural area is the transfer of decision centres from domestic institutions to supranational EU institutions of such sweeping character. In the face of the underlying weaknesses of national agricultural policy in Poland, the introduction of the EU common agricultural policy has been considered as particularly desirable solution. Agricultural integration with the EU has appeared as the first major opportunity to improve the economic situation in the sector. Since the outset of the transformation process in 1989 till the end of the next decade, subsequent governments have not decided to create adequate framework conditions for structural reforms in agriculture. In the pre-accession period, decision-makers basically preferred not to upset the situation in rural areas. Not only have they responded to the pressures exerted by various farm organisations to increase state support for market farmers but also, through increasing the importance of social measures in agricultural policy, they have clearly supported subsistence and small-scale farming. As highlighted in the first part of the chapter, for rural parties, highly dependent upon the number of rural votes, political benefits connected with the maintenance of obsolete agricultural structures have been significant. However, not only rural and populist parties but also other political forces and subsequent governments have been interested in the maintenance of the agricultural status quo. With its function as a 115

This applies also to other areas of state policy. However, in the agricultural sphere the enlargement of domestic administration and bureaucratisation is especially visible. As a result of accession, employment in the Agriculture Ministry is to increase four times. Employment in agencies that operate in the agriculture sphere is even to increase about seven to eight times (Szot, E., Biurokracja rolna będzie rosła, Boss Rolnictwo, No. 30, 28.07.2001).

141

5 National preferences in Poland with regard to agriculture and its integration to the EU ‘social buffer’, peasant farming proved to be an important and self-sustaining solution in the difficult times of economic transformation. Overall, the existing socio-economic and political constraints have made structural reforms in the sector particularly difficult. Polish decision-makers have found themselves facing two sets of quite contradictory rural interests; on the one hand they have propagated the modernisation and development of a strong, market-oriented agriculture sector being able to compete with EU agriculture and, on the other, they have supported small and economically weak peasant farms. It was expected that major structural changes would be more feasible both economically and politically after accession to the EU. All the more since, Europeanisation of agricultural policy has offered opportunity of shifting some part of political responsibility for socially costly reforms from domestic actors to EU institutions.

5.4 5.4.1

Polish integration policy in the area of agriculture and the food industry Basic assumptions of national strategy for integration to the EU

National strategy for integration to the EU, adopted in 1997, indicated major policy preferences of Poland in individual economic areas (National Integration Strategy, 1997)116. The document also put forward the underlying national objectives of Poland in the area of agriculture and food industry and defined the assumptions of national integration policy to be pursued in the pre-accession period. In addition, preferred membership conditions and potential problems in the integration process have been specified. In the National Strategy for Integration, the government referred to two basic levels of needed adjustments – first proceeding in the real and institutional spheres and related to agricultural structures and agri-food production, and second 116

The strategy was prepared by the Committee for European Integration on the basis of the Sejm resolution of 1996 and adopted on the 28 th of January 1997, by the SLD-PSL government. This document was prepared in direct connection with the preparations for EU accession, however it basically has not formed part of the government’s strategy or tactics for conducting the accession talks with the EU.

142

5 National preferences in Poland with regard to agriculture and its integration to the EU proceeding in the regulation sphere, i.e. related to alignment of agricultural policy to the EU’s CAP. Considering the first sphere, according to the government, the national integration policy in the area of agriculture and the food industry should pursue the following basic aims: -

restructuring and modernisation of agriculture,

-

increasing productivity and competitiveness in the sector,

-

modernisation of food-processing,

-

securing a favourable position for the Polish agri-food sector within the EU Common Market. The basic concerns of the Polish government in the context of agricultural

integration to the EU have related to the sphere of agricultural production and its competitiveness, particularly as Polish agriculture in this sphere was lagging far behind EU agriculture. Therefore, increasing agricultural productivity and competitiveness has remained the primary aim of agricultural policies of subsequent Polish governments. In contrast to the EU, which was going away from traditional agricultural policy supporting production and was moving towards a policy supporting farmers’ incomes and rural development, Poland still attached great importance to agricultural input and output support. Nonetheless, the Polish government committed itself to „attach considerable importance not just to agricultural production, but also to agricultural incomes” and supported so-called accompanying activities related to environmental and rural development (National Integration Strategy, 1997: 29). It should be noted, however, that Polish preferences in the area of rural development have somewhat differed from the EU approach. Polish agriculture, with its multifunctional character, traditional peasant farms, maintained biodiversity and extensive production techniques, has fundamentally fit into the European model of agriculture, propagated by the EU. Like the EU, the Polish government highly supported the development of environment-friendly agriculture and stressed the need for supporting ecological farming methods. But while in the EU the pressure for curbing excessive intensification of agricultural production has been particularly great, in Poland there has been concern that the level of intensification is too low. Moreover, the Polish government has been faced with overpopulation in rural areas as well as 143

5 National preferences in Poland with regard to agriculture and its integration to the EU with a high level of unemployment and hidden unemployment. Under these conditions, the basic tasks for rural development policy in Poland have been concentrated on improving the situation on the rural labour market and the creation of off-farm jobs in rural areas. Overall, structural reforms, reducing large agricultural employment and the development of rural areas have been indicated as the basic general conditions for increasing productivity and competitiveness in the sector. The adopted strategy not only stressed the need for supporting agricultural productivity growth, but also the need for supporting the processes of adjustments in the structure of agricultural production and modernisation of the domestic food-processing sector. An adequate production structure, fit to the needs of the market and the foodprocessing industry, raised agricultural productivity, greater concentration and specialisation of production as well as strong market institutions operating in the agricultural sphere have been indicated as some of the most important conditions for successful integration of the Polish agri-food economy to the EU. The strategy has also specified needed government actions in the area of trade relations with the EU in the pre-accession period and preparations for the accession negotiations. The government attached particular importance to the issue of securing better trade arrangements with the EU in the agri-food sphere in the pre-accession period. Other basic tasks for state policy for the period preceding membership concerned financial issues. As financial resources of the national budget have been basically insufficient relative the modernisation needs of the sector, the government aimed to secure financial support from external sources, particularly from the EU pre-accession funds, credits from investors and other financial institutions (National..., 1997:28). The estimated costs of the preparations for EU accession in the agricultural area were particularly high; the total costs resulting from adjustments to the EU agricultural acquis between 1999 and 2004 were to amount to about 24,5 billion złoty117. 117

The major part of the costs were to fall on farms and food processing (in the pre-accession period 1999-2002 estimated at about 7,2 billion złoty; particularly high costs of adjustments concerned the dairy sector). The remaining expenditures in that period (4,2 billion zloty) were to be covered from the state budget. Overall, the expected budgetary costs of adjustments to the EU agricultural acquis were the highest (Raport w sprawie korzyści i kosztów integracji..., 2000).

144

5 National preferences in Poland with regard to agriculture and its integration to the EU Concerning preferred membership conditions, equal conditions of competition between Polish and Union farmers and full access to the EU common market for Polish agri-food products have been indicated as primary national objectives. Another important issue referred to in the Polish strategy concerned the purchase of agricultural land by foreigners after accession. The government stressed that Polish economic interests in this area should be safeguarded, using the instruments applicable in EU member states. The government also declared that it would be aiming at inclusion of Polish farmers in the system of compensatory/direct payments or at obtaining necessary resources for financing other forms of support. This initially quite moderate position with regard to compensatory payments for Polish farmers had both economic and political justification. At the beginning of the second half of the 1990s, price differentials between Polish and the EU farm products were still significant. Since agricultural prices in Poland were to substantially rise after accession, improving the income situation of Polish farmers, the arguments for granting compensation payments, originally designed for EU farmers experiencing price cuts, would not be accepted by the EU. Furthermore, due to political reasons, the Polish decision-makers were very cautious as to presenting too demanding a position before Poland was formally invited to the accession negotiations. However, soon the Polish position in this area started to evolve – price differentials became smaller and farm trade unions demanded full direct payments from the first day of accession. Summing up, agricultural integration strategy has attached the greatest importance to modernisation of agriculture and food processing, particularly to increasing agricultural productivity and competitiveness of the agri-food sector. The government committed itself to support structural changes in the sector, to increase domestic support for farmers and food processing units and to secure better trade arrangements in the agricultural sphere as well as access to EU funds in the pre-accession period. Concerning expected terms of integration to the EU, the access to market support instruments and to the EU common market for Polish agri-food products as well as adequate protection of Polish agricultural land after accession have been primary national objectives of Poland.

145

5 National preferences in Poland with regard to agriculture and its integration to the EU 5.4.2

Agricultural policy alignment

The second group of issues referred to in the National Integration Strategy concerned alignment of agricultural policy to the CAP. Fundamentally, there have been significant differences between Polish agricultural policy and the EU’s CAP as regards both level and structure of agricultural support. Producer Support Estimates have shown that agricultural support in the EU is about twice as high as in Poland118. At the beginning of the 1990s, the difference in the level of agricultural support in Poland and in the EU was particularly great. Support to agriculture in Poland dramatically declined between 1988 and 1990. Although agricultural protection increased in the following years, it has been still significantly below that provided to farmers in the EU member states. In addition, in recent years the distance between Poland and the EU in terms of agricultural support has further enlarged.

Table 5.5 Support to agriculture in Poland and in the EU %PSE 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 p Poland 23 8 -18 7 9 17 22 16 19 18 26 24 15 15 14 EU

37

31

36

41

37

39

37

37

34

34

38

40

34

34

Source: Producer and Consumer Support Estimates, OECD Database 1986-2002, complement to the report Agricultural Policies in OECD Countries: Monitoring and Evaluation 2003, OECD, 2003, Paris.

The structure of support in Poland has also significantly differed from that provided under the CAP. As already mentioned, EU agricultural policy has been evolving from a traditional market-price support policy into a policy supporting farmers’ incomes. Following the cuts of intervention prices on individual Common Organisation of Markets in 1992, a system of direct payments was introduced. Since then direct payments have become the major policy instrument 118

PSE is a basic gauge for measuring the support granted to farmers. According to the definition of the OECD, the PSE is ‘an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm-gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on farm production or income’ (Agricultural Policies in OECD Countries, 2001:12).

146

36

5 National preferences in Poland with regard to agriculture and its integration to the EU supporting farmers’ incomes119. The Polish agricultural policy has instead put emphasis on the stabilisation of agricultural markets and supporting farmers’ incomes with market-price support instruments. As the Polish agricultural policy has not applied the instruments of direct support for farmers, traditional instruments linked to supporting agricultural prices have played a much greater role in Poland than in the EU. Also the share of input subsidies in the overall structure of support to agriculture has been larger in Poland (Dąbrowski et al, 2000). Generally, about 80 percent of support for agriculture, except for the subsidies to the Farmers’ Social Security Fund, has been input and output linked. Overall, support for agriculture in Poland can be divided into four main categories: -

market-price support (minimum and guaranteed prices),

-

input subsidies (preferential investment credits, interest-rate subsidies on credits for purchases of agricultural inputs, credit guarantees on commercial loans),

-

subsidies for farm modernization and rural infrastructure,

-

subsidies to the Farmers’ Social Security Fund. Although market-price support and intervention purchases have been the

basic instruments of Polish agricultural policy, the scope of intervention in Poland has been far narrower than in the EU. In Poland many sectors of agricultural production have not been covered by state intervention120. Furthermore, in contrast to the EU, Polish agricultural policy has not used management measures to deal with agricultural surpluses and has not applied production quotas and limits121. Considering the instruments of trade policy, there have been basically no

119

The importance of direct payments in the CAP has significantly risen since their introduction in 1992. The share of direct payments in the overall support to agricultural producers increased from 18 percent in 1992 to 67 percent in 2001 (European Commission, 2002h: 223). 120 While the EU has supported about 25 commodity groups, in Poland only about eight agricultural markets have been supported with intervention measures. They have been primarily applied to consumption grains, butter and skim milk powder. To a lesser extent, intervention has been applied on pork, sugar, honey, hop and starch potato markets (Dąbrowski, 2001). 121 With the exception of sugar, for which a quota was introduced in 1994.

147

5 National preferences in Poland with regard to agriculture and its integration to the EU differences between Poland and the EU122. Yet, despite all the similarities, EU trade policy in the agricultural sphere has differed from Polish policy in terms of the intensity of instruments used. Overall, the EU has used greater border protection, higher tariffs and entry prices for certain products. In addition, the EU supported certain agricultural products with export subsidies, which in Poland have been used only intermittently and to a much smaller extent (Dąbrowski, 2001)123. The Polish government decided to start adjustment processes in the area of agricultural policy alignment relatively late124. As a candidate for EU membership, Poland formally accepted the requirement of adaptation to the EU acquis, including the harmonisation of legislation on rural areas and agriculture and policy alignment. In the National Integration Strategy, the government officially committed itself to adjusting the instruments and mechanisms of agricultural and rural policy to those applied in the EU. However, at the same time, it has been stressed that the ‘introduction of many protectionist measures contained in the CAP is not in Poland’s general economic interest’ (National Integration Strategy,1997: 31). Such an approach has not been, however, tantamount to rejecting the need for increasing support for agriculture and agrifood processing in the pre-accession period. Basically, alignment processes in the area of agricultural policy, particularly referring to the market dimension, involved significant costs that could not be covered by the national budget. There were also concerns related to the possible economic and social consequences of introducing certain instruments of the CAP in Poland in the pre-accession period, particularly quotas and production limits as well as policy instruments regulating agricultural trade125. In addition, planned reforms of the CAP have increased

122

Poland has used instruments similar to instruments used by the EU: tariff rates and non-tariff barriers - division of minimum and current market access, supplemental customs duties, threshold prices, quantitative import restrictions, import licensing. 123 In Poland only pork, sugar, skim milk powder and starch potato have been supported with export subsidies. 124 It is worth noting that the association agreement did not impose on Poland the obligation to align agricultural policy to the CAP. The agreement only stressed the need for an increased harmony between the agricultural policies in the Community and Poland (Rowiński, 2000b: 270). 125 Basically, Poland has applied less restrictive trade policy in agri-food trade. Concerning supply management instruments, the basic concern of the Polish government was that they would have

148

5 National preferences in Poland with regard to agriculture and its integration to the EU doubts about the proper pace and scope of agricultural policy alignment. Notwithstanding, the creation of efficient administration structures for the implementation of CAP rules after accession as well as the implementation of EU veterinary, sanitary, animal-health and food-safety standards have been indicated as the priority areas for government policy.

5.4.2.1 The course of preparations for the EU accession At the end of the 1990s, the Polish government undertook some policy and regulatory reforms that involved alignment of Polish agricultural policy to the CAP, preparation of national administration for CAP functioning in Poland and implementation of EU veterinary and food-safety norms. The exact list of activities and adjustment priorities have been specified in the National Programme for Preparation for EU Membership for the years 1998-2002 (NPPM), adopted by the Polish government in June 1998126. The programme, updated each year, included the following adjustment priorities: -

preparation and implementation of structural policy in agriculture and rural areas,

-

harmonisation of veterinary legislation and veterinary administration structures with the EU veterinary legislation and administration structures as well as harmonisation of phytosanitary border control and phytosanitary provisions,

-

modernisation of certain sectors of the agri-food economy – milk and meat sectors,

-

ecological agriculture and ecological production (agri-environmental measures and afforestation, supporting ecological production),

imposed additional constraint on the development of agricultural production, which already suffered from unfavourable conditions during transition years . 126

The National Programme for Preparations for Membership in the EU (also called National Programme for the Adoption of the Acquis), determining the directions of adjustment activities in individual economic sectors as well as the exact schedule for adjustments in the years 1998-2002, has been a consequence of the Accession Partnership proposed by the EU in 1998. The Partnership aimed to support the adjustment efforts of the candidate countries through monitoring the course of adaptations to the acquis (i.a. in the form of the Commission’s Regular Reports on the Progress towards accession) and increased pre-accession financial support. It also specified the basic conditions for granting financial support to candidate countries.

149

5 National preferences in Poland with regard to agriculture and its integration to the EU -

preparations for implementation of the CAP rules and mechanisms in Poland.

Modernisation, restructuring and rural development Concerning the priorities referring to real structures (structural policy in rural areas and agriculture and modernisation of food processing), in July 1999 the government adopted the “Coherent structural policy for rural areas and agriculture”. As already mentioned, the document, together with the “Mediumterm Strategy for Agriculture and Rural Areas Development” of 1998 and the “Pact for Agriculture and Rural Areas” of 2000 formed the basis of the Polish policy on agriculture and rural development. Major policy instruments chosen to support structural changes in Polish agriculture and rural development have been credit subsidies; the government increased the importance of credit guarantees and subsidies to interest rates on credit and loans to support investments in agriculture, food processing and in rural areas127. However, the fundamental measures for agricultural restructuring, modernisation and rural development have been the EU pre-accession funds. With the Agenda 2000 document, the EU proposed special programme ‘Support for Accession Measures for Agriculture and Rural Development’ (SAPARD) aimed at promoting structural changes in agriculture and rural development in the ten candidate countries of Central and Eastern Europe128. SAPARD was based on the rules applied to EU structural funds; 127

Credit subsidies, managed by the Agency for Restructuring and Modernisation of Agriculture, were devoted not only to farmers and food-processing establishments, but also to extension services to agriculture, rural infrastructure as well as development of market infrastructure in agriculture’s environment. Furthermore, in 2001 new credit lines for the creation of off-farm jobs in rural areas were established; also the conditions of financial support to entrepreneurs dealing with non-farm activities in rural areas were alleviated. Other credits supporting structural changes in agriculture were offered by the Agricultural Property Agency of the State Treasury. The Agency was offering credits of very low interest rates to support investments aimed at creation of new jobs for unemployed persons, formerly working on state farms (Agency for Restructuring and Modernisation of Agriculture, http://www.arimr.gov.pl/dzialalnosc.html). 128 SAPARD was the first complex EU programme specifically devoted to structural changes in agricultural sectors of the transition countries. Earlier, agriculture and development of rural areas were supported with the Phare programme, however this help was devoted to the whole economy and not to a particular sector. Between 1990 and 1999, about 6 percent of overall financial support for Poland under Phare was devoted to agriculture. Rural development and structural changes in Polish agriculture were also supported with other non-EU financial aid, e.g. with the credit of the World Bank ‘Agriculture Support Adjustment Loan’ (ASAL). Between 2000-2004 the ASAL was

150

5 National preferences in Poland with regard to agriculture and its integration to the EU financial support for the candidates was to be carried out in the form of multiannual programmes requiring national co-financing. As the biggest candidate country, Poland was offered about 50 percent of all support under the SAPARD129. The functions of the paying agency, responsible for the implementation of the SAPARD in Poland, were given to the Agency for Restructuring and Modernisation of Agriculture130. The operational programme for the SAPARD was developed and sent to the EU at the end of 1999. However, due to problems with the accreditation of the ARMA as a SAPARD Agency, the implementation of the programme was significantly delayed131. As a consequence, SAPARD has been implemented in Poland only since July 2002. According to the programme, between 2002 and 2006 the SAPARD funds are to be allocated to support two parallel processes: a) Efficiency Improvement in the Agri-Food Sector, with particular attention paid to adjustments in the dairy, meat, fishery and fruit and vegetable sectors; dairy, meat and fisheries have been lagging far behind the EU with respect to compliance with food-safety standards; fruit and vegetables instead have been considered as an important sector of Polish agriculture able to gain a competitive advantage on the EU common market, b) Improvement of Business Conditions and Job Creation in Rural Areas, with particular attention paid in the first years of the programme’s operation to supporting technical infrastructure, and in the following phase to supporting investments focused on diversification of business activities in rural areas (SAPARD, Polish Operational Programme, 2000).

to support the Programme of Activation of Rural Areas in Poland, aimed at the creation of offfarm employment in rural areas, vocational training, investment in social and technical infrastructure in rural areas. 129 Financial support for Polish agriculture and rural areas was set at 168 million euro per year. 130 To deal with the new tasks and responsibilities the organisational structure of the agency was changed. In 2000, sixteen new regional offices of the Agency were established. 131 The process of ARMA's accreditation as a SAPARD Agency began quite late, in March 2001 and ended only in July 2002. The implementation of the SAPARD started with delays also in Hungary, Romania, Slovakia and the Czech Republic. Only in the case of Bulgaria, Estonia, Latvia and Lithuania did the Commission take the decision conferring management of aid under the SAPARD in 2001.

151

5 National preferences in Poland with regard to agriculture and its integration to the EU The government has also undertaken preparations to introduce in Poland the so-called accompanying measures, related to the second pillar of the CAP132. In 2001 the laws on afforestation of agricultural land and a structural pension scheme for farmers were adopted. Their major aim was to contribute to the improvement of farm structure and better land use in Poland. Both schemes have been in operation since the beginning of 2002. Farmers at pre-retirement age, ready to quit farming and to transfer their lands for enlargement of other farms, became entitled to receive early retirement benefits. The support for afforestation created an opportunity for setting aside agricultural land of very poor quality or suffering from unfavourable natural conditions. There have been also other initiatives and programmes aimed at improving farm structure, i.a. the programme of agricultural settlement on lands administered by the Agricultural Property Agency. Regarding less-favoured areas and agri-environmental measures, the government did not elaborate adequate national provisions in the pre-accession period. Overall, between 1999 and 2002 structural policy in agriculture and rural development significantly gained in importance in Poland. As shown in the first part of the chapter, this was reflected in the gradual change in the structure of budgetary outlays for agriculture and rural areas133. Notwithstanding, some important areas of state policy have been left unreformed. Most importantly, subsequent governments have not decided to reform the social security system for farmers. Despite the growing differentiation of the farmers’ community, all farmers – subsistence, semi-subsistence and also those who run larger farms, have paid the same contribution to the farmers’ social security fund and have not been charged with income tax on revenue from agricultural operations. Also the work on the law on the basics of the agricultural system in Poland, which was to contribute to the improvement of farm structure, specify detailed conditions for

132

These measures included support for less-favoured areas, agri-environmental programmes, afforestation and structural rents in agriculture (EU Council Regulation No 1257/1999 of 17 May 1999). 133 In addition, rural development was to be supported with the credit of the European Bank for Reconstruction and Development. In 2000 the Polish government signed a credit agreement with the bank to finance the Programme of Activation of Rural Areas, which was to support the creation

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5 National preferences in Poland with regard to agriculture and its integration to the EU acquisition of agricultural land as well as requirements towards farmers, have been protracted. Preparations for implementation of the CAP Other adjustments in policy included preparations for implementation of the Common Market Organisations and the EU veterinary and phytosanitary norms. The first major reform of Polish agricultural policy was put in place in 1999. The Polish government decided to change the rules governing the intervention purchases on the grain market and introduced a new instrument - payments to purchase prices of grains. The basic aim of the reform of intervention policy on the grain market was to separate, through introduction of direct subsidies to purchase prices, instruments aimed at supporting agricultural incomes and at market stabilisation134. The government also increased the role of other instruments, broadly applied in the EU: export subsidies and payments for private storage135. In the following years, the government intensified legislative activities regarding adaptations of individual agricultural markets to the EU agricultural acquis. Between 2000 and 2002 the bulk of laws preparing for the introduction of Common Market Organisations (CMO) in Poland was adopted136. One of the most

of off-farm employment, strengthening local governments and institutional development in rural areas. 134 Payments to purchase prices were to be offered to producers of wheat and rye (later on also to tobacco producers), which between August and October would sell their products to the purchasing units that had signed agreements with the Agricultural Market Agency. Intervention purchases aimed at buying up possible surpluses on market were to be activated between November and December, as in the EU. It is worth remembering that up to 1998 intervention purchases in Poland were carried out already during the summer months of the highest supply. 135 Export subsidies, earlier applied only to sugar and pork, covered also skim milk powder, starch potato, and later on rapeseed. Storage payments were granted to dairy products, grains and later on to pork. 136 To mention the most basic acts, in 2000 the government adopted the law on producers organisations and the laws on the organisation of fruit and vegetables, hops, tobacco and dried fodder markets. In 2000 also an important law was adopted on the introduction of a VAT system in agriculture (based on a reduced 3 percent VAT rate on non-processed farm produce and zero VAT rate on major part of equipment and means for agricultural production), with VAT returns for flat-rate farmers. The laws on milk and milk products, starch potato, spirits and sugar were enacted in 2001. The same year the law on veterinary issues providing for the rules for the system of identification and registration of animals was adopted. In 2002 the government adopted the law on organisation of certain agricultural markets providing for the practical implementation of the CMO after accession for grains, oilseeds and protein crops. Furthermore, with the law on foreign

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5 National preferences in Poland with regard to agriculture and its integration to the EU important policy changes concerned milk sector. The law adopted in 2001 extended the scope of state intervention on the milk market. New measures, subsidies to milk consumption and payments on every litre of milk in the extra class, were to stimulate milk production and to promote increases in milk quality. The new provisions also established the basis for introduction of a milk quota in Poland. In this context it is worth mentioning that the government was rather prone to support programmes and measures that would allow increases in agricultural production, at least in the most sensitive sectors, like in milk and grain, that soon were to be included in the EU system of supply controls137. Furthermore, as it was referred to in the national strategy, the government attached particular importance to market-price support instruments and to direct payments, i.e. to the first pillar of the CAP. The preparations for CAP implementation also involved important changes within administration structures. The Agency for Restructuring and Modernisation of Agriculture, in the pre-accession period responsible for paying and implementing functions with regard to the SAPARD, was to take the functions of a paying agency after accession to the EU, dealing with management of direct support to agricultural producers. This task of the Agency required establishing the Integrated Administration and Control System (IACS), needed to control agricultural production and manage the system of direct payments to farmers. The Agricultural

Market

Agency was

made responsible for the effective

implementation of CAP market support mechanisms as well as for the administration of trade mechanisms in agricultural area after accession to the EU. Other administration changes involved institutions engaged in monitoring the situation on agricultural markets and responsible for the creation and implementation of the Integrated System of Agricultural Market Information and Farm Accountancy Data Network (FADN) as well as institutions assessing the

trade administration of 2002, all instruments and mechanisms for administration of agri-food trade were aligned to those applied in the EU . 137 Interview in the Ministry of Agriculture and Rural Development, September 2002. The provisions of the new milk law have clearly reflected these concerns; milk quota was to be established on the basis of production in the reference year 2002/2003, in which state subsidies to milk were to rise significantly, as well as on the basis of an expected rise in domestic consumption. Furthermore, milk consumed on farms was excluded from the system of quotas.

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5 National preferences in Poland with regard to agriculture and its integration to the EU quality of agricultural products and responsible for execution of EU quality, veterinary and phytosanitary standards. The greatest problems arose with respect to the establishment of the Integrated Administration and Control System and the appropriate functioning of veterinary and phytosanitary services. The creation of the IACS was particularly hampered by frequent changes at the post of director of the Agency of Restructuring and Modernisation of Agriculture and irregularities in procurement procedures138. Regarding veterinary and phytosanitary issues, the Polish government has been gradually aligning law in this area to the EU acquis, however, administrative capacity to implement and control food safety and animal health, has still been considered insufficient relative to the requirements of the EU. There have appeared significant difficulties in establishing the system of identification and registration of animals as well as in strengthening border inspection posts checking live animals and products coming from third countries. The delays in these areas especially concerned the European Commission, which in the following reports on Poland’s progress towards accession highlighted the urgent need to accelerate work on IACS establishment and practical enforcement of the acquis related to food safety, veterinary and phytosanitary issues (European Commission, 1999, 2000a, 2001a, 2002f). Overall, as a result of preparations for EU accession, the Polish government extended the scope of intervention on agricultural markets and introduced new policy instruments. However, Polish agricultural policy still significantly differed from the CAP in terms of the level of support granted to farmers as well as main forms of support. A price-support system and input subsidies have remained the fundamental elements of state intervention in the sector. Furthermore, although legal adjustments as regards the organisation of individual agricultural markets were quite advanced, preparations of domestic administration structures for the implementation and enforcement of the EU agricultural acquis proceeded very arduously.

138

Between 2001 and 2003 there were four changes at the post of director of the Agency. Each director represented a different political option and held different views on the organisation of the system. These difficulties also delayed the process of the accreditation of the Agency as the paying agency for the implementation of the SAPARD (Przybylski, M., Dlaczego są problemy w budowie IACS. System służy politykom, Rzeczpospolita, No. 142, 20 June 2003).

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5 National preferences in Poland with regard to agriculture and its integration to the EU

5.5

Summary

Polish preferences in the area of agriculture and its integration to the EU have been determined by the specific developments in Poland’s economy, in the agricultural sector and in internal politics during the transformation years. The negative position of farmers and farm lobbies towards a market economy and European integration, repeatedly manifested in the 1990s, substantially constrained the Polish internal bargaining set as regards the agriculture sector’s integration to the EU. Farm trade unions successfully pressured for policy measures favourable for major agricultural producers and continued to threaten the government with rejecting EU membership in case the conditions of accession in the agriculture area were not favourable enough. Both left-wing and right-wing governments increased the level of support for agricultural producers and developed quite complex and protectionist agricultural policy. However, the developed agricultural policy has not been conducive to structural changes in the sector and has not led to improvement of income for Polish farmers. The agricultural policy of the successive Polish governments has been marked by the lack of a stable framework for intervention measures on individual agricultural markets, increasing levels of financial means for intervention purchases after each major wave of farmers’ protests and the dominant role of social measures. Such an approach has resulted in economically inefficient agricultural policy; however, at the same time, it has reduced the social costs of economic transformation and has ensured relative political stability in the country. In the conditions of significant social constraints and inept agricultural policy of the state, accession to the EU and inclusion in the CAP mechanisms appeared as the best solution for the problems of Polish agriculture and the problems of decision-making in the agricultural area. The underlying weaknesses of the Polish economy and the structural backwardness of agriculture have put Poland in the typical demandeur position, characteristic for economically weaker countries. To secure public support for integration to the EU, Polish decisionmakers had to take into account all major fears of Polish farmers as well as 156

5 National preferences in Poland with regard to agriculture and its integration to the EU representatives of food processing, related i.a. to the issue of equal competition conditions, support for required conversion, adequate assistance for small and less-efficient farms and protection of Polish agricultural land. Due to limited financial resources of the state for restructuring and modernisation of agriculture and food processing, the government aimed to secure external financial support. Access to the EU pre-accession funds, to the EU common market for Polish agrifood products and after accession, to the CAP instruments of support for agricultural producers have been indicated as the primary national objectives. Basically, Polish preferences centred around the instruments of support included in the first pillar of the CAP. Access to EU financial means supporting rural development and structural changes, both under the second pillar of the CAP and the Structural Funds, was basically unconstrained. Generally, the EU was rather prone to devote more resources to rural development in Poland than to support agricultural production. However, as farming still represented a major economic activity in rural areas in Poland, improving agricultural profitability and providing the best possible access to the CAP instruments supporting agricultural producers were of primary importance for subsequent Polish governments. Furthermore, Polish political decision-makers were tending towards securing adequate support from the EU for both commercial and semi-subsistence farms. National preferences of Poland as regards agriculture and its integration to the EU have become more prominent during the internal preparations for accession. According to the national strategy for integration, Polish integration policy in the pre-accession period was to focus primarily on supporting restructuring and modernisation of the agri-food sector, increasing its competitiveness and agricultural productivity. Consequently, the major part of financial resources available under the SAPARD pre-accession fund was devoted to improving efficiency in the agri-food sector. To make Polish agri-food products more competitive on EU and international markets the government aimed to support adjustment processes both on farms and in food processing. Particular attention was given to the most sensitive sectors like dairy, meat and fisheries in which there was a great deal of adjustment work. Support measures have been also allocated to other, labour-intensive sectors, like fruit and vegetables, in which 157

5 National preferences in Poland with regard to agriculture and its integration to the EU Polish producers have had a relative competitive advantage and could win an important position on the EU common market. The rural development measures were in the first place to support the development of technical infrastructure in agriculture’s environment. According to the government, these areas, due to the substantial backwardness of Polish agriculture, required particular attention and support in the pre-accession period. Concerning the regulation and policy sphere, the adjustments have been mainly focused on legal and administration issues. The government has fundamentally continued with the agricultural policy developed during the transition years. Input and output-linked support still played the basic role in Polish agricultural policy; at the same time the role of social measures in the structure of support for agriculture further increased at the end of the 1990s. All things considered, Polish preferences in the area of agriculture and its integration to the EU have been shaped by both economic and political concerns; the policy options favoured by the subsequent Polish governments have reflected the existing dual structure of Polish agriculture. Economic concerns have drawn government attention to the market sub-sector of Polish agriculture and food processing and to the issue of agricultural productivity and competitiveness. At the same time, domestic political considerations have inclined Polish decisionmakers to cater to the needs of subsistence and semi-subsistence farms, which still occupied an important position in the rural landscape of Poland.

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6 The EU-Polish accession negotiations on agriculture 6.1

General conditions of the accession negotiations

The principal Level I actors and their position in the institutional structure of the accession negotiations The legal basis for EU enlargement negotiations as well as their general conditions are laid down in article 49 of the Treaty on European Union which stipulates that any European state which respects the principles of liberty, democracy, human rights and fundamental freedoms and the rule of law may apply to become a member of the Union. Article 49 of the Treaty on European Union also defines major actors in the accession negotiations. According to the formal provisions, the negotiations are conducted between the member states of the Union and an individual candidate country. The fundamental actors of the accession negotiations are then national governments of EU member states and governments of the candidate countries, which meet during the Intergovernmental Accession Conferences. On the part of Poland, the main actor in the process of the accession negotiations has been the Negotiation Team consisting of government officials and experts designated directly by the Prime Minister. The political leadership of the accession negotiations was provided by the Prime Minister. The Prime Minister was supported by the Minister of Foreign Affairs, the Secretary of the Committee for European Integration and the Government Plenipotentiary. The Negotiation Team was headed by the Government Plenipotentiary for Poland’s Accession Negotiations to the European Union, also called Chief Negotiator139. All tasks regarding the negotiation process were yielded to a small group of specialists working in the negotiation team. The Negotiating Team was made responsible for developing and realizing the government’s negotiation strategy,

139

The institution of Government Plenipotentiary for Poland’s Accession Negotiations to the EU was established in March 1998. The Plenipotentiary acted with the help of the Chancellory of Prime Minister, the Committee for European Integration and the Ministry for Foreign Affairs (Sprawozdanie z działalności Pełnomocnika Rządu do Spraw Negocjacji, 2001).

6 The EU-Polish accession negotiations on agriculture including preparation of negotiating positions and other documents indispensable for conducting negotiations140. EU member states act within the Council of the European Union (the main EU institution), where they further their national interests and negotiate over possible compromises and common positions for negotiations with third parties. Regarding common positions for the accession negotiations with applicant countries, the EU member states adopt them by unanimous voting. The EU member states, before they enter negotiations with the candidate countries, are engaged in double internal negotiations – first at the domestic level with social groups and different national interest organizations and later at the EU level with other member states during which they aim to advance their domestically negotiated positions. Other important actors in the accession negotiations from the part of the EU are the European Commission and the European Parliament. The European Commission is a supranational institution of the EU responsible for administration, proposing legislative acts and safeguarding the implementation of the acquis communautaire. Generally, the Commission, as responsible for representing the European Community in other international negotiations, is considered the major negotiator in negotiations with third countries. However, in the accession negotiations, the Commission is not the Union’s formal negotiator. It mainly deals with coordination and mediation between the preferences of the governments involved in the negotiations. It is also responsible for preparing draft common positions of the Union and works on compromises that would be acceptable for both negotiating parties. The Commission also prepares special reports evaluating the progress made by individual candidate countries. Therefore, in practice the role of the Commission is great. As a supranational body, the Commission favours the enlargement processes of the EU. Enlargement by 140

The documents submitted during the negotiations were prepared with the help of the Inter– Ministerial Team for the Preparation of Accession Negotiations with the European Union and the Committee for European Integration (Accession Negotiations. Poland on the road to the European Union, 2000).

160

6 The EU-Polish accession negotiations on agriculture definition strengthens the position of the Commission in the EU institutional structure. The organization of the very accession negotiations entails budget expansion for the Commission as well as staff enlargement. The importance of the Commission will increase not only in terms of budget and staff, but also in terms of its competence and power141. Another EU institution included to the process of accession negotiations is the European Parliament. The Parliament does not directly take part in the accession talks. However, the Parliament’s role is great since it gives its assent to the negotiated agreement. The European Parliament consists of representatives elected by the same voters that choose the representatives to national governments. This might have implied that the European Parliament’s members should not be very enthusiastic about the enlargement given that EU citizens have been concerned about the economic consequences of new member states’ accession142. However, additional important considerations in assessing the position of the members of the European Parliament should be taken into account. Fundamentally, similar to in the case of the European Commission, the Union’s enlargement entails rather the expansion of Parliament’s responsibilities than the limitations thereof. Another important consideration which makes the European Parliament more willing to support enlargement, is its vocation to foster the idea of a united Europe, which provides the groundwork for the formation of EU institutions. Therefore, the European Parliament can indeed be considered as playing the role of a mediator in the negotiations, similar to the role played by the Commission.

141

The EU preparations to include new member states involved important institutional modifications. The Treaty of Amsterdam and the Treaty of Nice increased the competence of the Commission; prerogatives of the President of the Commission increased – namely the President received the right to decide on internal organization of the Commission as well as on the division of competencies between the members of the Commission. President also has the right to appoint vice-presidents of the Commission and the right to dismiss a member of the Commission, after obtaining approval of the College (Consolidated Versions of the Treaty on European Union and of the Treaty establishing European Community, 2002: article 217). 142 In Spring 1998, when the overall accession talks with the six candidate countries were launched, about 45 percent of EU citizens believed that the EU enlargement would cost their own country more money. Such opinions were expressed particularly by the Dutch (64 percent), the Danes (63 percent) and the Germans (62 percent). 47 percent of EU citizens also believed that the

161

6 The EU-Polish accession negotiations on agriculture Procedures Formal procedures of the enlargement negotiations with the CEECs have been the same as used in the previous enlargement rounds. During the accession negotiations the parties concerned define the terms of the adoption of the acquis and decide on possible transitional periods or temporary derogations to individual legal acts that are devised to facilitate the integration process. Transition periods can be requested either by a candidate country or by the European Union, whereas the requests for derogation are submitted only by applicants. The negotiations are thus to determine the number, length and nature of transition periods, the participation of a new member state in EU policies and EU institutions, as well as the applicant country's contribution to the Community's budget. The accession negotiations with the CEECs, Cyprus and Malta consisted of five main stages, namely screening, preparation of position papers, actual negotiations based on the negotiation positions, the end-game concerning the provisions of the Accession Treaty, and the ratification of the Accession Treaty. In the first screening stage of the accession negotiations, the Commission together with the candidate countries review the legislation of the applicant countries regarding their compatibility with the EU’s acquis communautaire143. Only after the screening process are the parties’ official negotiating positions prepared. The European Commission prepares the Union’s draft common positions only after receiving from the candidate states their pertinent negotiating positions. The Council of the European Union appoints one working group for the enlargement process which has to follow the work of the Intergovernmental Accession Conference and prepares the EU common positions on specific issues on the basis of the Commission’s drafts. Then the project of the position paper is approved by the Committee of Permanent accession of poorer CEECs would imply less financial aid for their own country (Standard Eurobarometer 49, 1998: 61). 143 The law, screened from the point of view of its compliance with the EU’s acquis communautaire, can be qualified into three general categories. First category is for law already transposed to a national legal system. The second category includes national law requiring technical adaptations to the EU acquis. The third category includes the most problematic areas; here the incorporation of the Union’s acquis to national legislation is basically not possible before accession to the EU.

162

6 The EU-Polish accession negotiations on agriculture Representatives (COREPER), an auxiliary body of the Council of the EU, that consists of the representatives of the member states who are ambassadors to the EU (Accession Negotiations, 2000). The actual negotiations are held in the form of the Intergovernmental Accession Conferences either at the level of Ministers for Foreign Affairs of the EU member states and the candidate states or at the lower level of the deputy heads of delegations i.e. chief negotiator of the candidate country and members of COREPER144. There are also meetings between negotiators from the candidate countries and representatives of different EU institutions, namely the officials of the European Commission from the Directorate General responsible for enlargement and accession negotiations, as well as with Members of the European Parliament. Another important forum for the accession negotiations are bilateral meetings between the representatives of a candidate country and the representatives of individual member states. The parties negotiate issues in specific negotiating chapters that reflect concrete EU/EC sectoral policies. The accession negotiations with the CEECs have been divided into 31 negotiation chapters, each representing one policy area and its acquis145. The EU adopted specific principles to facilitate the negotiations in individual policy areas stating that ‘any view expressed by either party on a chapter of the negotiations will in no way prejudge the position which may be taken on other chapters; (...) agreements - even partial - reached during the course of the negotiations on chapters to be examined successively may not be considered as final until an overall agreement has been established’ (Council of the European Union, 1998). The accession 144

The accession conferences at the level of ministers are held with all candidate countries, in the accession conferences at the level of deputies, the representatives of the EU 15 member states and of individual candidate country take part. 145 The thematic chapters are: 1. Free Movement of Goods; 2. Freedom of Movement for Persons; 3. Freedom to Provide Services; 4. Free Movement of Capital; 5. Company Law; 6. Competition Policy; 7. Agriculture; 8. Fisheries; 9. Transport Policy; 10. Taxation; 11. Economic and Monetary Union; 12. Statistics; 13. Social Policy and Employment; 14. Energy; 15. Industrial Policy; 16. Small and Medium–Sized Enterprises; 17. Science and Research; 18. Education, Training and Youth; 19. Telecommunications and Information Technologies; 20. Culture and Audiovisual Policy; 21. Regional Policy and Co–ordination of Structural Instruments; 22. Environment; 23. Consumers and Health Protection; 24. Justice and Home Affairs; 25. Customs Union; 26. External Relations; 27. Common Foreign and Security Policy; 28. Financial Control; 29. Financial and Budgetary Provisions; 30. Institutions; 31. Other. (Accession Negotiations, 2000: 16-17).

163

6 The EU-Polish accession negotiations on agriculture negotiations with the CEECs have been also based on the principle of differentiation, according to which each applicant country should be judged on the basis of its own merits, thus even those countries which started negotiations later, could catch up and join the group of the early expected entrants. The precise timetable (the so-called road map) for the accession negotiations, including the negotiations on agriculture was adopted at the Nice European Council in December 2000. According to the Nice strategy, the accession negotiations with the best prepared candidate countries were to be concluded at the end of 2002, so that these countries could take part in European Parliament elections in 2004 as members. To accelerate the negotiations the EU adopted some new solutions and differentiated possible transitional periods into three major categories: -

acceptable transitional periods, of a technical character with no impact on competition and the functioning of the Single European Market,

-

transitional periods subject to negotiations – their adoption would entail important consequences for competition and the Single European Market’s functioning, they can be accepted only under specified conditions,

-

unacceptable – the adoption of such transitional periods would entail significant problems for the functioning of the Single European Market. Apart from defining the categories of transitional periods, the EU has

allowed for the so called ‘set-aside procedure’ according to which the negotiations in difficult areas could be ‘set aside’ and reopened at a later stage of the negotiations or after the solutions to these difficult problems would have been found. Fundamentally, this procedure was to ensure progress in other negotiation areas which otherwise would have been blocked by issues from more difficult chapters. Usually, the key issues, notably agriculture, structural policy, and budget, are negotiated at the end when all other provisions of the Accession Treaty have been hammered out. In the last stage, the negotiated Accession Treaty is subject to ratification. The European Parliament approves the Accession Treaty by absolute majority of its component members. At the level of EU member states, the ratification takes 164

6 The EU-Polish accession negotiations on agriculture place in accordance with respective constitutional requirements. EU citizens can decide on the adoption or rejection of the Accession Treaty either indirectly by their political representatives in the national parliaments and the European Parliament or by way of public referendum146. Basically, the fact that the final decision in the EU on the admission of new member states is taken in parliamentary institutions reduces the ratification constraint in the negotiations. In Poland ratification of international agreements can be carried out either by parliament by two-thirds majority voting in both chambers – Sejm and Senate (article 90) or by the public in a national referendum (article 125) (Constitution of the Republic of Poland, 1997). The validity of a public referendum on ratification of international agreements in Poland depends on the rate of turnout – the results are binding only if more than half of the entitled voters would take part in the voting147. The 1997 Constitution also provided for the possibility of ratification in the parliament in case less than half of the total number of voters took part in a national referendum. Considering the significance of Poland’s accession to the EU, the Polish government declared at the outset of the negotiations that the accession treaty would be subject to ratification by the public. Therefore, Polish negotiators started the accession talks facing restrictive ratification hurdles of a double nature – as to the shape of a final decision taken by the Polish public and as to the rate of turnout in the referendum. Parliamentary voting on the country’s accession to the EU, in case the turnout rate did not exceed the required threshold, was politically very risky and basically not accepted by the major political forces. The institutions involved and procedures applied in the accession negotiations are summarised in the following figure:

146

Though the instrument of a national referendum for admitting a new member state into the EU is possible in some member states, it is not used in practice. In the EU member states, parliamentary ratification procedures as regards international treaties are commonly applied. 147

Different rules apply to a public referendum concerning domestic issues. In such referenda there is no requirement concerning turnout.

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6 The EU-Polish accession negotiations on agriculture Figure 6.1 The Process of Poland’s Accession Negotiations to the EU

EUROPEAN UNION

POLAND NEGOTIATION TEAM INTERMINISTERIAL TEAM

COUNCIL OF MINISTERS NEGOTIATION TEAM The Negotiation Team prepares, and the Council of Ministers accepts position papers in all negotiation areas

COUNCIL OF MINISTERS NEGOTIATION TEAM

COUNCIL OF MINISTERS NEGOTIATION TEAM

THE POLISH PARLIAMENT

COUNCIL THE PUBLICOF BY WAY OF NATIONAL MINISTERS

STAGE I: SCREENING SESSIONS IN BRUSSELS Review of Polish legislation regarding its compliance with the acquis communautaire

STAGE II: PREPERATION OF POSITION PAPERS Meetings of Intergovernmental Accession Conference (IAC) in Brussels or Luxembourg

STAGE III: NEGOTIATIONS BASED ON NEGOTIATION POSITIONS IAC meetings in Brussels or Luxembourg Negotiations are held by way of explanatory and expert meetings as well as the exchange of written information and clarifications concerning negotiation problems and interpretations of the acquis STAGE IV: THE ACCESSION TREATY Settlement of the last, most difficult issues. They are compiled into a final negotiation package. Approval of the accession negotiations results takes the form of the provisions of the Accession Treaty

STAGE V: RATIFICATION OF THE ACCESSION TREATY

REFERENDUM

EUROPEAN COMMISSION

COUNCIL OF THE EUROPEAN UNION (EU MEMBER STATES)

The Council prepares a common EU position in consultation with Member States on the basis of proposals submitted by the European Commission or the Presidency

COUNCIL OF THE EUROPEAN UNION (EU MEMBER STATES)

COUNCIL OF THE EUROPEAN UNION (EU MEMBER STATES)

EUROPEAN PARLIAMENT NATIONAL PARLIAMENTS OF EU MEMBER STATES

COUNCIL OF

Source: Accession Negotiations (2000:38).

6.2

Major negotiation issues in the agricultural chapter

Agricultural issues were included in chapter seven. As underlined in the previous sections, agriculture is the largest negotiation chapter, strictly connected with the 166

6 The EU-Polish accession negotiations on agriculture negotiations on financial and budgetary issues. During negotiations, the EU and the Polish government were to decide on such issues as the inclusion of the Polish agricultural sector in the CAP, the inclusion of the Polish market of agri-food produce in the Single European Market, rural development, establishment of institutions needed for CAP implementation, and the creation of veterinary and phytosanitary control units (Rolnictwo: Zrozumieć Negocjacje, 2001). The negotiations on agricultural issues were divided into seven specific categories: horizontal issues, common market organizations, specialised crops, livestock and animal products, rural development, veterinary legislation and phytosanitary legislation (European Commission, 2003a)148. The candidate countries were expected, prior to the accession, to adopt their national legislation and agricultural systems to EU agricultural legislation. From a technical point of view, the task of adaptations to the EU legislation system was, however, simpler in the agricultural field than in other fields of adjustments. Most of the Community’s acquis in the field of agriculture consists of regulations that apply directly from accession and therefore do not require special transposition to national legislation. Only in veterinary and phytosanitary areas does the Community’s legislation consist of directives which call for transposition to national law. Therefore the most important legislative task for the candidate countries concerned the transposition of the huge body of EU veterinary and phytosanitary regulation. In each consecutive enlargement talks the scale of problems was different, and so were the major negotiation problems149. In the enlargement negotiations to 148

The basic issues within the first category, ‘Horizontal issues’, include: direct payments and the system of their distribution, state aids, stocks, and possible safeguards. In the second negotiation category, Common Market Organisations, important issues refer to fixing reference quantities, i.e. base areas and reference yields for arable crops and rice, potato starch quotas, national guaranteed quantities for dried fodder and fibres, sugar and isoglucose quotas, thresholds, quotas and national guaranteed quantity for specialised crops (e.g. tobacco) quotas and premiums as to livestock and animal products (milk quota, special beef premium, suckler premium etc). Within the third group, negotiations are devoted to special support and transitional periods for producers of specialised crops. The fourth group of negotiation issues concern transitional arrangements for livestock and animal products (possible transitional periods for producers and processing units not complying with EU requirements). The fifth big group of negotiation issues relates to ‘rural development’. The remaining two categories of negotiation issues include veterinary and phytosanitary legislation. 149 See: Chapter 1.

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6 The EU-Polish accession negotiations on agriculture include the CEECs, the major negotiation problems in the agriculture field concerned the issue of direct payments, supply management measures, transposition and implementation of the EU agricultural acquis in veterinary and phytosanitary fields, and, in particular, compliance with EU standards as regards food safety. A short characterization of the mentioned negotiation problems and their major sources is given in the following.

6.2.1

Direct payments

The most politically sensitive issue in agricultural negotiations between the EU and the CEECs concerned direct payments to agricultural producers. The fundamental problem with direct payments was that the negotiating parties held quite opposite views as to their possible impact on agriculture of the new member states. The first formal opinion as regards the inclusion of the new members from Central and Eastern Europe to the CAP was presented by the European Commission in July 1997, in the Agenda 2000 document. Generally, the Commission argued that new member states should not be included in the direct income support scheme right after accession. The direct payments for farmers appeared in the EU in 1992, in specific circumstances of reductions in support prices for major agricultural products. Due to the fact that prices in the CEECs were not subject to reduction, the Commission argued, there was no need to compensate farmers with direct payments. Furthermore, as direct payments have been absorbing a larger part of the EU budget, their full application in the candidate countries would entail significant budgetary costs for the EU. First calculations of the Commission indicated that extension of the CAP to the new member states would entail a budgetary charge of about 11 billion ecu per year; from which 7,7 billion would have to be spent on direct payments (European Commission, 1997b: 20). The Commission suggested that not only direct payments were inappropriate for the new member states but also high support prices under the CAP. Fundamentally, the Commission held the view that the then existing CAP was not a very proper system for the transition countries. Agricultural sectors of the CEECs badly needed deep structural changes and, in 168

6 The EU-Polish accession negotiations on agriculture the opinion of the Commission, their full inclusion to the CAP might have slowed down the pace of restructuring processes. The Commission noted that direct subsidies might have created a wrong sort of incentives to consolidate semisubsistence farming in the CEECs, and hence hamper restructuring. Covered by direct payments, many semi-subsistence farmers in new member states would be encouraged to continue farming. The Commission was also concerned with the possibly negative impact of direct payments on social equilibrium in rural areas. According to the Commission’s officials, ‘inordinate cash injections through direct payments would risk creating income disparities and social distortions in the rural areas of these countries’ (European Commission, 1997a: 31). It was argued that the weaknesses of the agri-food sector and existing price differentials between the CEECs and the EU call for transitional periods in the area of agriculture. Otherwise, the enlarged Union would face significant imbalances on major agricultural markets. While rejecting the idea of covering the CEECs farmers with direct support schemes, the Commission underlined that the CEECs should receive special aid for restructuring and development of their agricultural sectors and food processing (European Commission, 1997a: 65). The Commission’s position on the prospective accession of the CEECs and agricultural integration between East and West fundamentally reflected the general approach of the EU member states. The incumbents were firmly against the idea of granting direct payments to their eastern neighbours. Consequently, the Berlin compromise of March 1999, that fixed the financial perspective for 20002006 and determined the ceiling of expenditures for eastern enlargement, did not provide for direct payments for the new member states. The tough position of the EU member states as regards the CEECs inclusion in the CAP, was also determined by the fact that the CAP and the system of direct payments were to be reformed in the years to come. Direct payments were subject to growing criticism from the side of those member states that wished to ‘green’ the first pillar of the CAP, that is to couple direct support to farmers with requirements referred to environmental issues and sustainable agricultural development. However, both the proponents of radical reform of the direct payments system and defenders of the 169

6 The EU-Polish accession negotiations on agriculture status quo held the view that farmers from the CEECs should not be granted direct payments, at least in the first years of their membership in the EU. The applicant countries had quite opposite preferences as regards direct payments, demanding their full application from the first day of accession. In contrast to the EU, they considered them as indispensable for restructuring and modernisation of their agricultural sectors. Direct subsidies were expected to stimulate intensification and specialisation of agricultural holdings, so much needed in the CEECs. Furthermore, due to diminishing price differentials for farm produce between the EU and the CEECs, full access to direct payments was considered necessary for ensuring equal competition conditions for farmers in the enlarged Union.

6.2.2

Supply management measures

Another difficult negotiation issue concerned supply management measures, i.e. base areas, production limits and quotas, maximum guaranteed quantities and reference yields. Supply controls were introduced to the CAP in the 1980s to tackle the problems of agricultural surpluses and growing agricultural expenditures of the European Community. Agricultural support schemes were then strictly combined with fixed-supply management instruments. The system was aimed at maintaining agricultural production at the planned level; it also served as the basis for calculating the level of direct payments and hence facilitated budgetary planning150. The level of quotas, limits and reference quantities for acceding countries was to be determined on the basis of recent production figures. The problems for the CEECs in this area resulted from the fact that agricultural production significantly declined since the start of the transition151. According to EU assumptions, new member states should have

150

Direct payments are either per hectare (according to a reference yield) or per headage. As reference yields differ in individual member states, so does the rate of direct payments received by agricultural producers. 151 Agricultural output declined from 15 to 30 percent in the countries of central Europe and more than 50 percent in some of the Baltic countries (Transition Report 2002: Agriculture and rural transition, 2002).

170

6 The EU-Polish accession negotiations on agriculture introduced supply controls on the basis of production figures from recent years, unbiased by central planning. However, the CEECs held the view that the recent reference period was not representative for their agriculture sectors. Decline in the level of agricultural production was considered to be of a temporary nature. The governments of the candidate countries argued that their agricultural sectors would be able to significantly increase agricultural output in the following years. Fixing agricultural production for the next decades at the level of output achieved during the unstable transition years would, in the opinion of the applicant states, artificially freeze the potential of their farm sectors. The candidate countries primarily feared that the negotiated quotas and limits might not correspond with domestic demand for agri-food produce that had been expected to rise along with growing per capita incomes. There were also important concerns about social consequences of introducing supply control measures. Agriculture in transition countries was playing the role of a social buffer giving employment opportunities for people that lost their jobs in other sectors of the economy or just wanted to wait out the difficult transition years. The introduction of supply control instruments implied lesser ease as regards farming activities. It also implied a transfer of quotas between producers; market-oriented farmers were expected to purchase producer rights from semi-subsistence farms. High production quotas and limits were not only in the interest of market-oriented farmers, but also in the interest of the CEECs food processing industries. All things considered, the CEECs wished to secure the biggest possible quotas and reference quantities, while the EU, already coping with agricultural surpluses, aimed at curbing agricultural production in the enlarged Union.

6.2.3

Food safety, veterinary and phytosanitary aspects

Food safety was the third key issue in the EU accession negotiations in the agriculture chapter with the CEECs. In the 1990s the CAP lost much of its

171

6 The EU-Polish accession negotiations on agriculture legitimacy because of the recurrent scandals with contaminated food 152. The EU member states committed themselves to the realisation of the European Model of Agriculture that placed great emphasis on environmentally friendly agricultural production and on sustainable development of rural areas. In 1999 the special Health and Consumer Protection Directorate General within the European Commission was established153. All parts of the food production chain, from primary production through processing, distribution and retail have been subjected to official and stricter controls. Therefore, the importance of consumer and food safety issues has gained a far higher profile in the accession talks with the CEECs than during the past enlargement rounds. All the more since the standards in the CEECs as regards food safety were generally far below the EU requirements. The EU member states put a great deal of pressure on the candidate countries to adopt their legislative systems in food safety, veterinary and phytosanitary fields to EU standards and to ensure their efficient implementation upon accession. However, many food processing establishments in the CEECs were lacking capital to upgrade rapidly to EU requirements and hence could not fully participate in the Single European Market. Most of them would have to cease their operations if not restructured upon accession. Therefore, of primary importance for the CEECs was to secure for ‘lagging’ establishments the right to continue their businesses for sales at local markets for a period after accession to the EU. The EU member states were reluctant about the idea of granting such transitional periods fearing that food not meeting EU standards would get through to the EU market. The CEECs were obliged to present national programmes for securing food safety prior to EU accession. In order to assess and monitor possible threats in this area, the Commission’s service – Food and Veterinary Office – realised a series of 152

The biggest crisis broke up after the expansion of BSE - Bovine Spongiform Encephalopathy, also known as mad cow disease - in EU member states in the mid-1990s. There were also problems with recurrent poultry diseases, epidemics of pig foot-and-mouth disease and with contaminated grains. 153 The EU activity in this area intensified in the following years, which was reflected in the creation of the European Food Safety Authority in 2002, responsible for providing scientific advice on a broad range of issues related to food safety. Furthermore, the EU has aimed to integrate food safety regulations on feed and food controls across the EU and - through applying uniform procedures - to improve the performance of national control systems, verifying compliance of establishments with animal feed and food legislation.

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6 The EU-Polish accession negotiations on agriculture missions to prospective Union members to check their systems of food safety controls. To conclude, for the EU the most important issue in this part of the negotiations referred then to building an effective network of food control systems in new member states and in particular at their borders, which were to become an external border of the whole Union. For the candidates, the primary issue was to secure a number of transitional periods to allow for the required conversion in food establishments.

6.3

The Polish negotiating position on agriculture

The Polish government’s negotiating position on agriculture was one of the most complex and extensive negotiating positions prepared for the accession talks with the EU (cf. Rowiński, 2002a). The government prepared its position paper on agriculture in November 1999; the document was officially adopted on 9 December 1999 and sent to the EU on 16 December 1999. The internal negotiations on what stance Poland should take in the negotiations on agriculture were tough and full of tensions154. It should be remembered that the work of the government on the negotiating position in agriculture area coincided with a wave of strong farmers’ protests between 1998 and 1999155. Core elements of the Polish negotiating position on agriculture The three key requests included in the Polish position paper on the chapter ‘agriculture’ were: -

to ensure that Polish agriculture is fully covered with the CAP instruments, including direct payments, from the first day of accession;

-

to establish adequate production limits, quotas and reference quantities, that would allow the use of natural potential for environmentally friendly agricultural production in Poland, to keep jobs and to ensure stable incomes for farmers;

154

Author’s interview with the former Chief negotiator of the Polish negotiating team, Jan Kułakowski, 13 September 2002; author’s interview with Julian Krzyżanowski, director of the Department of European Integration of the Ministry of Agriculture and Rural Development, 16 September 2002.

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6 The EU-Polish accession negotiations on agriculture -

to include Polish agri-food products into the Single European Market (CAEUP CONF-PL 63-99, 1999). The Polish government rejected the EU concerns that full integration of

Polish agriculture to the EU would lead to the destabilisation of agricultural markets in the Union and that it would be unfeasible in budgetary terms. According to the Polish government’s view, integration to the EU and to the CAP should be governed by the principle of equal obligations and equal rights. Poland declared that she would be ready to fully implement the EU acquis in the field of agriculture at latest by 31 December 2002, before the date of accession set on 1 January 2003. In return for full adaptation to EU law, the Polish government was expecting Polish agriculture to be fully covered by the CAP instruments. Thus the declaration on readiness to implement the whole acquis in the agriculture field, was not unconditional: The readiness to implement the whole legislation related to the common organisation of agricultural markets, quality control and EU trade regime at the moment of Poland’s accession as well as a possibility to cover the agricultural sector with the principles of the Single Market, declared by the Polish government, depends upon providing Polish agriculture with access to all Common Agricultural Policy instruments (including direct payments) (CAEU-P CONF-PL 63-99, 1999: 4).

The inclusion of Polish agriculture in the CAP and its coverage by traditional market price support schemes was fundamentally unquestionable. As mentioned above, subject of disputes was the issue of direct payments, which, in accordance with the decisions of EU member states taken in Berlin in March 1999, were not to be granted to new member states at least until the end of 2006. The Polish government took a very tough stance as regards direct payments, firmly demanding their full application in Poland from the day of accession. The Polish negotiators disagreed with the EU view that direct payments would hamper agricultural restructuring and would generate social risks in rural areas. Quite to the contrary, they were considered as essential for restructuring and modernisation of Polish agriculture. Second, the government argued that farmers would not earn much more than other socio-economic groups even with full direct payments, since the disparity of farmers’ incomes had grown considerably in the 1990s. 155

See: Chapter 5.

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6 The EU-Polish accession negotiations on agriculture Fighting for full inclusion of Polish agriculture in the CAP, the Polish government highlighted that direct payments lost their original character of payments compensating for cuts in the price-support system and became a very important instrument for income support in the Union. The differences in prices for agricultural commodities in Poland and in the EU-15 have been steadily narrowing and in some product groups farm prices in Poland have been even higher than in the EU156. Therefore, the exclusion of Polish farmers from the system of direct payments would violate the principle of competition on an equal footing. In addition, it was argued that even short and temporary exclusion from direct payments would significantly worsen the conditions for the Polish agricultural sector’s development in the following years. As highlighted in the previous section, equally important for the government and equally difficult were the issues of introducing supply-control instruments. The most important for the Polish government was to establish adequate quotas and reference quantities (reference yield) for such sensitive agricultural products as milk and cereals. These product groups had been determining incomes of the core group of Polish agricultural producers. Other important negotiation issues for the government included setting quotas for such products as white sugar and isoglucose, potato starch, dried fodder and raw tobacco (CAEU-P CONF-PL 63-99, 1999: 8). As mentioned above, the Polish side argued that the decline in agricultural production and in domestic demand was of a transitory nature. It was primarily prompted by the downward trend in agricultural profitability, unfavourable climatic conditions, difficulties in competing with highly subsidised agricultural imports from the EU and low purchasing power of the average Polish family household. Therefore, according to the Polish position paper, the recent years, as not representative for the Polish agricultural sector, should not be taken as a reference period for fixing production limits and quotas. Setting quotas and reference quantities for agricultural production at the levels of production from the end of the 1990s would imply the necessity of increasing agricultural imports in the future, also of those products 156

E.g. cereals, pork, and poultry meat.

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6 The EU-Polish accession negotiations on agriculture which could have been produced in Poland. The government was especially concerned about a possible milk quota. At the end of the 1990s there were about 500.000 farms for which milk production was the primary source of income. It was indicated that in the specific conditions of farming in Poland, a quite high level of milk production was used directly within farms and therefore not shown in official statistics157. An expected rise in demand for milk made the Polish government particularly sensitive to this issue. Poland requested then a milk quota that was based on production figures from the end of the 1980s. Moreover, the quota proposed had a moving character, rising in the years 2003-2008 from 11,2 million tonnes to 13,7 million tonnes. It should be noted that the quota proposed by the Polish government exceeded actual production in Poland by about 2 million tonnes. Similarly, the quota for potato starch proposed by the Polish government corresponded with production figures from the 1980s. The proposal of a quota for sugar, though not exceeding actual production, was higher than domestic consumption of sugar and the export level158. Concerning ceilings for animal premiums, the Polish side also based its position on production figures from the last years of central planning. In the 1990s the headage had significantly lowered, however, the government argued that given large resources of meadows and pastures, the extensive production of beef had great opportunities to develop. Another important negotiation issue concerned the level of the reference yield needed to calculate the rate of direct payments for producers of cereals. With quite low yields per hectare in Poland in the 1990s, Polish grain producers were to receive a lower rate of direct support as compared to producers in the old member states with similar climatic and natural conditions. It was expected that due to increased material expenditures, yields in Poland would be systematically rising. Therefore, Poland requested to take as a basis for calculating the reference yield the years 1986/87 and 1990/91 that were used for fixing the reference yields in the 157

It was estimated that about 25 percent of produced milk was not sold on the market being consumed directly in rural households. The Polish government argued that many small farms would cease to exist after the accession to the EU and hence the number of persons willing to buy milk would increase. 158 The exact Polish proposals for reference quantities and quotas are put together in the table 6.3, comparing the negotiating positions of both negotiating parties in the last section of this chapter, describing the results of the negotiations.

176

6 The EU-Polish accession negotiations on agriculture old member states and that were relatively favourable for Poland in terms of the yields achieved. Additionally, Poland asked to increase such calculated reference yield by 15 percent, i.e. by about 0,5 tonne, which gave in sum 3,61 tonnes per hectare. Summing up, the position of the government on supply management instruments to be introduced in the sector reflected its fundamental concerns about ensuring adequate conditions for the development of the production potential of Polish agriculture, which became stifled during the transition years. Consequently, the quotas and limits proposed by the Polish government generally exceeded actual agricultural production159. The third group of negotiation problems, raised in the Polish position paper,

concerned

both

farmers

and

food

processing

establishments.

Fundamentally, Poland, like other candidate countries, did not wish to have transitional periods in agriculture, i.e. in these areas that referred to the market support system. However, at the same time, Poland applied for several transitional periods and derogations160. The most crucial were requests for a transitional period for farms and processing plants that would not manage to comply with the EU health, veterinary and sanitary standards by the day of accession. The Polish government requested then a transitional period for farms producing milk as well as for milk processing establishments, not complying fully with the EU requirements, for a period of 2 to 3 years following the accession date. The second important request concerned meat establishments not meeting all the veterinary requirements. In this area the Polish government wanted to secure a four-year transitional period. A three-year transitional period was requested for fish processing plants. The products originated in these establishments were to be placed only on the domestic market or exported to the third countries outside the EU. Since it was expected that food produced in establishments not meeting EU requirements would be losing competition on the domestic market with establishments meeting EU standards, securing the possibility to export the

159

For a review and analysis of these elements of the Polish negotiating position see Rowiński (2002a).

177

6 The EU-Polish accession negotiations on agriculture products in question outside the EU was very important for the government. Transitional periods were necessary to protect jobs in many small and mediumsized processing establishments that proved quite important to local labour markets. When applying for the transitional periods in this area, the Polish government committed itself to continue restructuring and modernisation programmes in agriculture and its environment, especially in the dairy and meat sectors. The establishments concerned were also committed to follow detailed restructuring programmes and to fully comply with the EU veterinary, sanitary and public health protection standards before the end of the requested transitional periods. The remaining key problems, referred to in the Polish negotiating position, concerned technical and administrative preparations for CAP implementation in Poland, special provisions in the trade sphere, state aid for agriculture and issues specific to Polish agriculture. As for the first problem, the Polish government asked for support from the EU budget for establishing the Integrated Administration and Control System (IACS) needed for actual functioning of the CAP in the member states. Setting up the system was quite costly; thus the Polish side requested support at the level of 50 percent of the total costs of its establishment during the first three years after accession. In fact, this request was in contradiction to the commitment of the Polish government to implement all agricultural acquis by the end of 2002. It also implied that Poland needed one more transitional period in the agriculture area161. Next, following the solutions adopted in the agriculture negotiations with the EFTA countries, the Polish negotiators applied for the possibility of introducing a safeguard measure in the sphere of agricultural trade, for a period of 5 years after accession, if trade between Poland and one or more EU member states would result in disturbances on Polish agricultural markets. Apart from the request concerning protection of the domestic agricultural market, the Polish government sought EU approval to

160

It is worth noting that the Polish government in its negotiating position did not use the term ‘transitional period’, substituting it with such terms as ‘derogation’, ‘temporary derogation’, ‘temporary admission’.

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6 The EU-Polish accession negotiations on agriculture maintain national support programmes for agriculture and the agri-food industry, introduced in the pre-accession period162. Furthermore, Poland proposed to enlarge the list of agricultural products eligible for EU support, e.g. for red soft fruit, as well as some modifications to the CAP, like e.g. the establishment of new Common Market Organizations for table potatoes and herbs. Finally, some important negotiation problems, related to agricultural negotiations but not formally included in the agricultural chapter of the accession talks, should be mentioned. Particularly the position on the acquisition of real estate by foreigners, included in the chapter on free movement of capital, had important bearing on the talks in the agriculture chapter. Due to specific historical, political and social constraints, the government requested a five-year transition period for the acquisition of real estate for investment purposes and an eighteen-year transition period for acquisition of agricultural and woodland real estate. The rationale for such long transitional periods, apart from historical and political considerations, was that Polish citizens, due to relatively lower purchasing power, could not compete effectively with western capital163. Furthermore, prices for land in Poland were far lower than in the EU164. The fears that foreigners would buy up agricultural land upon accession were especially widespread among farmers and rural-area inhabitants165. Therefore, for the Polish government, and in particular for farm interest groups and rural parties, the issue of securing adequate

161

The request for a transitional period for the ICAS establishment was withdrawn by the Polish government in the later stage of the negotiations. 162 This involved i.a. refunds for agricultural fuel purchase and fertiliser subsidies, interest rate subsidies on agricultural credits, tax exemptions and reliefs, set-purpose subsidies and subsidies partly compensating investments in farms and in the agri-food industry (CAEU-P CONF-PL 6399, 1999:16-17). 163 Poland’s Position Paper in the area of ‘Free Movement of Capital’ (1999). 164 At the end of the 1990s, agricultural land in Poland could be purchased at a price on average seven times lower than in the EU. For that reason the provisions regulating the selling and buying of agricultural land have been very restrictive in Poland. Though foreigners basically have had the right to buy agricultural land, practically, due to bureaucratic procedures, there have been only few transactions throughout the 1990s. The total amount of agricultural land sold to foreigners in the 90s amounted to about 1512 ha (Alińska, 2001: 218-219). 165 According to the survey carried out by the Institute of Public Affairs in 1999, as many as 87 percent of Polish farmers feared that agricultural land would be bought up by foreigners; similar concerns were expressed by 79 percent of rural-area inhabitants. These concerns were particularly common in the areas of the so-called ‘Regained Lands’, see: Chapter 5.

179

6 The EU-Polish accession negotiations on agriculture provisions in the area of real estate acquisition by foreigners was as crucial as the issue of securing full direct payments from the first day of accession.

6.4

First phase of the EU-Polish bargaining on agriculture 20002001

The process of accession negotiations for Poland’s membership in the EU was launched under the right-wing coalition government of AWS-UW (Election Action Solidarity – Freedom Union), formed after the general elections of September 1997. The negotiations in the field of agriculture started, as in other negotiation areas, from the screening stage in September 1998; however, the actual accession talks on agriculture were formally opened only in June 2000, after the candidate countries had presented their negotiating positions166. The official answer of the EU member states to the Polish negotiating position on agriculture was presented in June 2000, together with the answers given to other candidate countries of the Luxembourg group. This EU document was kind of an appeal in which the Polish authorities were called on to take up necessary actions to facilitate prospective integration in the agricultural sphere. The EU did not take a stance on the key negotiation issue, i.e. on direct payments, stating that its position on that issue would be presented ‘at a later stage of the negotiations after a thorough examination of all the aspects related to the issue’ (CAEU-P: CONF-PL 33/00, 2000: 2). At the same time the EU recalled that the framework for financing enlargement up to 2006 was set by the Berlin European Council in March 1999. Fundamentally, the EU officials were concerned that the coverage of the candidate countries with all CAP instruments would imply a significant increase in agricultural expenditures and thereby the infringement of the budgetary limit set at 1,27 percent of the EU GDP. Moreover, the EU reminded the candidate countries that the CAP and its instruments would be 166

The negotiations on agricultural issues were also opened with other candidate countries from the Luxembourg Group. The negotiations in the agricultural chapter with several candidate countries from the Helsinki group, namely with Latvia, Lithuania and Slovakia were opened one year later, that is in June 2001. The negotiations with Bulgaria and Romania were planned to be conducted at the later stage.

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6 The EU-Polish accession negotiations on agriculture subject to review in the soon foreseeable future. This implied that core decisions in negotiations on agriculture would only be taken after the incumbents had reached an internal compromise as to the CAP future. As the EU member states delayed the decision on direct payments, in the first phase of the negotiations much of the bargaining on this key issue was going on between the Polish government and the European Commission. Unofficial statements by the European Commission made at the beginning of 2000 showed that there was some room for manoeuvres in this area167. Fundamentally, the Commission’s position on the issue in question was evolving in a direction more favourable for the applicant countries. The more conciliatory stance of the Commission was a direct reaction to the concerns raised by the candidate countries that accession agreement without direct payments would not be accepted by numerous farmers’ communities in the CEECs. In January 2000 the Commissioner for Agriculture, Franz Fischler, admitted that new members should not be devoid of direct payments because these payments indeed ceased to be only a means for compensating price cuts. However, this did not imply consent to full direct payments for the newcomers. In March 2000 Fischler signalled that the candidates would have to accept a long transitional period, estimated then at about 5-7 years, to reach the same level of direct payments as applied in the old member states168. The Polish government, though it welcomed the fact that the Commission had agreed with the Polish arguments about the role of direct payments in the system of agricultural support in the Union, still stood by its demand for full direct payments for Polish farmers. The Commission’s informal concepts, however, were not reflected in the EU member states position paper from June 2000 and the Polish government had to wait for the EU official stance on that issue till the final months of the negotiations.

167

Though it should be remembered that in October 1999 the Enlargement Commissioner, Guenter Verheugen, still firmly stated that the newcomers would not receive compensatory payments in the first years of their membership in the EU. 168 Financial Times, 2 March 2000.

181

6 The EU-Polish accession negotiations on agriculture The EU also rejected all other major requests included in the Polish position paper of December 1999. The proposals for production quotas and reference quantities, partly based on production figures from central planning, were heavily criticised as not having a sound economic base. Poland was then invited to reconsider her position in this area and to provide information on production figures from the years 1995-1999. The EU also said no to Polish proposals for establishing new market organizations and for extending EU support to some additional products. Furthermore, the requested safeguard clause for agrifood products in the event of serious disturbances on the Polish agricultural market as well as requested transitional state aids for agriculture were turned down as not compatible with the acquis. The EU suggested that such a safeguard clause not only was inconsistent with the principles of the single market, but also was very hard to execute. Experiences after the accession of the EFTA countries showed that provisions on a safeguard clause were virtually ineffective due to the lack of border controls within the Single Market. Moreover, in case of the CEECs, they would be less justified as farm prices there, in contrast to farm prices in the EFTA countries, still were below the EU levels. To prevent possible imbalances on the Polish agricultural market, the EU proposed further trade liberalisation in the period prior to accession (CAEU-P: CONF-PL 33/00, 2000: 4). The negotiations on mutual agricultural tariff reductions between the EU and the candidate countries, called double zero talks, started already in October 1999. Though formally the negotiations on the double-zero agreement proceeded independently from the accession negotiations, in fact they were strictly interconnected. They were conducted parallel to the accession talks and involved the same negotiators169. The double-zero option under the Europe Agreement was to provide for deeper trade integration between the EU and the candidate countries through lowering both tariffs and subsidies to agricultural production. However, in December 1999 the Polish government decided to raise tariffs on several

169

On the part of Poland, the same officials of the Ministry of Agriculture were responsible for the agricultural part of the accession negotiations and for negotiations on agricultural trade liberalisation. In the case of the EU, the chief negotiator in talks on trade liberalisation was the

182

6 The EU-Polish accession negotiations on agriculture agricultural products, provoking fierce criticism from the EU. The EU argued that the tariff hikes were inconsistent with the provisions of the Europe Agreement. In such circumstances, the request for a safeguard clause in the trade sphere after accession proved to have little chances for EU approval. Notwithstanding, the Polish government argued that the rises in tariffs were necessary due to a growing imbalance in agricultural trade between Poland and the EU and that even with the December hikes the level of aggregate market support was far lower in Poland than in the EU under the CAP. For the EU, withdrawal of the tariff hikes was a sine qua non condition for moving forward in negotiations on the double-zero option. Due to unyielding positions of both negotiating parties, the talks on the double-zero option broke down in spring 2000170. Poland protracted the negotiations both to receive more trade concessions and to extract commitments from the EU as regards the conditions of the Polish agricultural sector’s integration to the EU. The most important goal for the Polish negotiating team was to persuade the EU to take a position on financial aspects of agricultural integration. Therefore, the government was reluctant not only toward a rapid conclusion of the double-zero talks but also toward going ahead with the negotiations on the other issues included in the agriculture chapter, without knowing what the EU position on direct payments was. As a result, Poland signed the double-zero agreement with the EU at the end of September 2000, as the last candidate country. In November 2000, Franz Fischler reiterated the Commission’s arguments that full direct payments were not appropriate for the evolution that the candidate countries had been undergoing171. Eneko Landaburu, the director general at the Enlargement Directorate, warned the candidate countries that the accession negotiations would not be successfully concluded if the candidates persisted with

European Commission, responsible for drafting the EU Common Positions for the accession negotiations. 170 It is worth noting that only Polish-EU negotiations on double-zero agreement broke off. With all other candidate countries from CEE, the negotiations on farm trade liberalisation were continuing apace and final agreements on double-zero, except for Lithuania, entered into force in July 2000. 171 Frankfurter Allgemeine Zeitung of 17 November 2000.

183

6 The EU-Polish accession negotiations on agriculture the demand of full direct payments172. In the same month the representatives of Polish farmers issued a statement in Brussels in which they threatened to reject membership in the EU if no full direct payments were granted to Polish agriculture. Keeping in mind the recent farmers’ protests and the hard-won agreement with farm organisations in 1999, the Polish government continued to press the EU for full direct payments. Furthermore, the government found itself in a precarious position in the middle of 2000 as a result of conflicts between the coalition partners and was unwilling to make decisions, including decisions in the area of the negotiations with the EU, that might have further undermined its standing in the domestic arena. The crisis, evoked by growing divergencies between the coalition partners, resulted in the withdrawal of the Freedom Union from the coalition and in the creation of an AWS minority government in May 2000173. This had an adverse impact on the pace of negotiations with the EU. As a result, Poland, initially one of the front-runners, was overtaken in the negotiations by most second-wave candidate countries that had started the accession talks two years later174. The pace of negotiations with the EU further slowed down in the run up to the general elections in Poland to be held in September 2001. The relatively greatest progress was noted during the talks on veterinary and phytosanitary issues, which, as not requiring making financial decisions, proved to be less sensitive than other issues included in the agriculture chapter. Although the EU expressed its reservations as to transitional periods for establishments not complying with EU requirements, it generally was more open to respect Polish requests in this area. In the Common Position paper on veterinary and phytosanitary issues of 24 October 2001, the EU invited Poland to provide a detailed list of establishments concerned and to present a national plan for the

172

A similar position was presented at the EU-Poland Joint Parliamentary Committee in November 2000 (European Parliament, 2000). 173 The major reason for the collapse of the coalition was disagreement within the government as to the so-called second Balcerowicz plan for completion of economy restructuring. The plan, furthered by the Freedom Union, had not met with support from the senior coalition partner – AWS. The contentious issues included tax reform, general enfranchisement, and introduction of a 3-percent VAT for agricultural products. 174 The progress made by other candidate countries concerned areas other than agriculture. All candidate countries that opened the negotiations in the agriculture chapter were in similar position.

184

6 The EU-Polish accession negotiations on agriculture achievement of full compliance with the EU standards (CAEU-P: CONF-PL 94/01, 2001)175. Summing up, in the first phase of agricultural negotiations, after the completed screening process, the EU and Polish negotiators prepared their first position papers to be discussed during the consecutive intergovernmental encounters. However, the negotiations on such key issues as supply controls and direct payments were de facto put off until the EU reached a compromise as to the financial conditions of agricultural integration and the CAP’s future. The negotiations mainly consisted in the interchange of information and opinions between the Polish government and the European Commission. Only in less sensitive areas like in the veterinary and phytosanitary subchapter, the negotiations moved forward somewhat. Although no key issues were decided during the first two years of agriculture negotiations, this stage was of paramount importance for both negotiating parties. EU negotiators became more aware of the very constricted acceptability-set of the Polish government as regards international agreements on agriculture. Similarly, the Polish negotiators were confronted with a very tough stance of the EU member states as regards direct payments and supply-control instruments. All things considered, both the Polish government and the EU member states, building upon very restricted negotiation mandates, took extremely hard-line positions during the first phase of the agriculture negotiations.

Due to the unknown position of the EU member states on the financial terms of agricultural integration, the core decisions were to be taken at the end of the whole negotiation process. 175 At the end of 2001 only few meat plants and dairies fully met EU veterinary and sanitary standards. From 3650 meat plants, only 45 (that is 1.2 percent) have been complying with EU norms and from 391 dairies only 24 (6 percent) (Rzeczpospolita, No. 15, 18 January 2002).

185

6 The EU-Polish accession negotiations on agriculture 6.5

6.5.1

End-game of the accession negotiations: Level II

The European Commission proposal on the EU Draft Common Position on Agriculture – January 2002

At the end of 2001 and the beginning of 2002, the EU took key decisions concerning the conclusion of the accession negotiations and the European Commission prepared key proposals for negotiations in the agriculture chapter. At the European Council in Laeken in December 2001, the year 2004 was indicated as a possible date for the fifth EU enlargement. Furthermore, the Laeken Presidency Conclusions stated that the enlargement would be realized in the form of a big-bang enlargement to include 10 new members (European Council, 2001)176. The proposal for accommodating the agricultural sectors of the candidate countries to the CAP was presented by the European Commission on January 30, 2002 (European Commission, 2002a)177. The Commission’s document on agriculture can be considered the beginning of the end-game of the overall accession negotiations with the CEECs. Though the Commission’s communication was only a proposal and not the position of the EU member states, its publication marked a new phase in the accession negotiations. Core elements of the Commission’s proposals One of the core parts of the Commission’s proposal concerned direct payments. As direct payments became the basic instrument of the CAP, the Commission argued, the permanent exclusion of the newcomers from this form of EU support for agriculture would be inconsistent with the acquis communautaire and principles of a single market (European Commission, 2002a: 5). However, as already highlighted, the Commission’s assent to granting direct payments for the new member states was not tantamount to an assent to grant direct payments in

176

That is all candidate countries that had started accession negotiations except for Bulgaria and Romania. 177 Apart from the publication of the document Enlargement and Agriculture: Successfully integrating the new Member States into the CAP - Issues paper, the Commission published the same day the information note Common Financial Framework 2004-2006 for the Accession Negotiations.

186

6 The EU-Polish accession negotiations on agriculture amounts corresponding to levels paid to EU farmers.

The Commission’s

compromising solution envisaged: -

introduction of direct payments in the new member states at a level of 25 percent in 2004, 30 percent in 2005 and 35 percent in 2006 of payments applicable in old member states

-

in a second step after 2006, augmentation of direct payments, by percentage steps in such a way as to ensure that in 2013 farmers in the new member states are covered with the support level then applicable (European Commission, 2002a: 6). The Commission proposed then a long transitional period as regards direct

payments that extended to the next EU financial perspective. According to the Commission’s project, the EU direct aid could be supplemented with national direct payments up to the total level of support applicable prior to accession178. Furthermore, taking into account the difficulties in establishing the standard version of the IACS, the Commission suggested that the new member states might use the simplified system for the distribution of direct payments. Another important component of the Commission’s proposal concerned structural measures. The Commission proposed to increase the expenditure for structural measures to support modernisation and restructuring in agricultural sectors of the new member states. According to the Commission, a dualism of structures in agricultural sectors of the CEECs, that is the co-existence of a large number of subsistence and semi-subsistence farms with large commercial agricultural holdings called for designing specific measures for the newcomers. The Commission underlined that measures to be introduced in agriculture sectors 178

According to the Commission’s proposal, direct payments could be topped up by national resources provided that the total support per scheme granted in a new member state did not exceed the level applicable under the same scheme in the existing member states. Fundamentally, topping up of EU direct payments was then provided for those candidate countries where support in the agriculture sector was relatively high and the introduction of incomplete direct payments would imply for them a lower level of support after accession. Needless to say, inclusion in the CAP, even with incomplete direct payments, implied for most CEECs a greater level of agricultural support than under national support schemes. Only in Slovenia, Cyprus and Malta was the overall level of support relatively high and in some specific subsectors even higher than in the EU.

187

6 The EU-Polish accession negotiations on agriculture of the CEECs should not undermine semi-subsistence farming, which proved to play an important safety-net role. To ease transition problems in agricultural sectors of the CEECs, the Commission proposed the so-called small farmers scheme in the form of a flat rate aid to be applied during the transition period. Despite the fact that the Commission provided for gradual introduction of direct payments in the new member states, the overall financial framework for 2000-2006 was intact. The Commission underlined that the costs of enlargement, including agricultural expenditure and direct payments to the new member states, could be accommodated within the financial framework set in Berlin and in accordance with the Interinstitutional Agreement of 6 May 1999 on budgetary discipline, signed by the Council of the European Union, the European Parliament and the European Commission.

6.5.2

The internal negotiations between EU member states on financial conditions of agricultural integration

The governments of EU member states discussed the Commission’s proposals for the EU position on negotiations in the agriculture chapter soon after their announcement179.

These

discussions

launched

several

months’

internal

negotiations between the incumbents on the financial conditions of eastern enlargement. The Commissioner for budget, Michaele Schreyer, endeavoured to convince the EU finance ministers that the proposal of the Commission was a good compromise between the financial interests of the current EU-15 and the new member states (Council of the European Union, 2002a). Not only was the Commission proposal congruent with the financial framework set in Berlin in 1999, but it also included some new solutions which lowered the financial burden for the incumbents resulting from enlargement. The adoption of the Commission proposals would imply reduction of financial costs of enlargement from 0,16 percent to 0,08 percent of the EU member states’ GDP. Furthermore, according to

179

The EU member states discussed the Commission proposals first at the meeting of foreign ministers, on 8-9 February 2002 in Cáceres and then at the meeting of the ministers of finance on

188

6 The EU-Polish accession negotiations on agriculture the Commission proposals, the new member states were to pay full contributions to the common budget from the day of accession180. Despite this, the communication from the Commission triggered a great many disputes in the EU member states. There were opponents as well as moderate supporters of the Commission’s financial plan for concluding the negotiations. The Belgian, Finnish, Greek, Irish, Luxembourg, Portuguese, and the Spanish delegations were in favour of the Commission’s plans. Afraid of the financial implications of the Commission’s proposal, Austria and France took a more cautious position. However, these delegations did not oppose the idea of granting the newcomers some proportion of the EU direct agricultural subsidies. With the new member states benefiting from direct payments, France and other beneficiaries of the CAP were gaining a guarantee that the system of direct payments would be maintained in the future. Germany, the United Kingdom, the Netherlands and Sweden – the major net contributors to the EU budget – considered the Commission communication as far-fetched181. They fundamentally did not agree to the idea of granting even some part of direct aid to farmers in the new member states, since such a solution would go beyond the financial decisions of the EU taken in Berlin. They were opposed to phasing in direct payments to farmers in the new member states not only because of financial implications, but also because they feared that it would strengthen the group of supporters of agricultural protectionism and hence impede a radical CAP reform. Basically, they wanted make decisions on agricultural integration with the CEECs conditional on adopting a balanced and comprehensive reform of the CAP182. The most intensive internal negotiations between the EU member states regarding the EU common position on financial aspects of agriculture integration took place between April and May 2002. In April, the German government unofficially signalled that it would be ready to accept direct payments for the new member states, providing that the CAP would

February 12, in Brussels (EU Ministers look at the Commission’s proposals, Enlargement Weekly, 11 February, 2002) 180 See: Schreyer tells EU finance ministers the enlargement plan is a “good compromise”, Enlargement Weekly, 18 February 2002. 181 Gazeta Wyborcza, 6 February 2002. 182 Rzeczpospolita, No. 93, 20 April 2002.

189

6 The EU-Polish accession negotiations on agriculture be reformed183. The three remaining CAP critics – the Netherlands, the United Kingdom and Sweden – still firmly opposed the proposal of granting direct payments to the candidate countries. The extensive reform of the CAP was considered indispensable for reaching an agreement on the terms of the CEECs accession. According to the timetable set yet in Berlin in 1999, in July 2002 the Commission published the ‘Mid-term review of the Common Agricultural Policy’, assessing the implementation of the Agenda 2000 provisions in the area of agriculture. The Commission’s proposals on CAP reform included such measures as further cuts in intervention prices, degressivity of direct payments and their decoupling already in 2004, modulation, cross-compliance and expansion of the second pillar of the CAP (European Commission, 2002d)184. However, the EU internal negotiations on the CAP future were postponed until the political situation in two key EU countries – France and Germany – was cleared up. With approaching parliamentary elections, the governments of these countries preferred to defer decisions on the financial terms of EU enlargement to the East as well as on CAP reforms185. Additionally, EU farmers fiercely opposed the planned changes in the CAP and in the system of direct payments. They also won significant support from farmers in the candidate countries. On June 11, 2002 the agricultural organizations from the old member states (COPA and COGECA) and agricultural organizations from the candidate countries organized a first joint protest action before the European Parliament against planned reforms of the CAP186. Overall, the key decisions concerning direct payments to the new member states were delayed187. At the meeting of the General Affairs Council in Luxembourg on the 17 th of June 2002, the EU member states referred only to legal aspects of the CEECs’ 183

Rzeczpospolita, No. 96, 24 April 2002. For the analysis of the proposals of the CAP reforms, see Wilkin (2002b), Rowiński (2002b). 185 General elections in France were to be held in May 2002 and in Germany in September 2002. 186 In the protest, organized under the heading ‘Good and Responsible agriculture for all Europeans’, about 15.000 farmers from both the EU member states and candidate countries took part (Gazeta Wyborcza, 12 June 2002). 187 No EU agreement yet on direct payments to farmers, Enlargement Weekly, 18 June 2002. 184

190

6 The EU-Polish accession negotiations on agriculture agricultural accession. They agreed that although the Berlin financial perspectives for the period 2000-2006 did not cover direct payments in agriculture to the new member states, direct support schemes were part of the acquis and could not be reserved only for the incumbents (Council of the European Union, 2002b). However, the EU member states still did not formally agree to a phasing-in mechanism for direct payments (CAEU-P: CONF-PL 45/02, 2002)188. They stated that this decision would be taken in due time to adhere to the roadmap for enlargement set in Laeken and Goeteborg. Furthermore, the EU member states appealed to the candidates to adopt a realistic and constructive approach to finish talks of the accession negotiations, i.e. not to present demands which would upset the EU financial compromise reached in Berlin. In the June Position Paper, the EU also adopted the Commission’s proposals regarding the reference quantities and production limits. The EU repeated that calculations of the production quotas and limits should be based on figures for the period 1995-1999. An important concession in this area was the EU agreement to pick out from this period the most favourable years in terms of production and to eliminate years of low yields. However, as highlighted earlier, the EU Position Paper of 20 June did not refer to financing of the CEECs’ accession to the EU. Only after the elections held in September in Germany and victory of the incumbent coalition SPD/Green Party, was the way to agreement with the French government and to final approval of the financial conditions of EU enlargement opened189. An agreement between France and Germany on the future of the CAP and the next financial perspective was the key issue for successful conclusion of the accession negotiations. All other fundamental issues, like institutional aspects of the Union’s functioning after enlargement were already decided. The EU was to accommodate

188

The EU member states included the Commission’s statement about direct payments as part of the acquis also in the Presidency Conclusions of the Seville European Council in June 21/22 (European Council, 2002a). 189 Bielecki, J., Poszerzenie UE. Francja i Niemcy bliżej porozumienia o warunkach finansowych, Rzeczpospolita, No. 246, 21 October 2002.

191

6 The EU-Polish accession negotiations on agriculture the new member states in the EU institutions according to the Treaty of Nice, adopted in December 2000190. Financial terms of the Union’s enlargement to the east were finally specified at the Brussels European Council in October 2002. The incumbents decided to somewhat lower enlargement-related expenditures, specified in the Agenda 2000 document191. Regarding agriculture, on 24 October 2002, the day before the European Council meeting in Brussels, France and Germany came to a compromise as to CAP expenditures in the enlarged Union. The compromise was then adopted on October 25 by remaining EU member states in the official conclusions from the Brussels summit. France gained a guarantee that the financial framework 2000-2006 is valid and that specific agricultural conditions in the member states would be taken into account during the introduction of individual elements of the CAP reforms. Thereby the core reforms planned by the Commission in the mid-term review were de facto rescheduled to the next financial period 2007-2013, though decisions themselves on the CAP reforms were to be taken before the enlargement. The Heads of State and Government also agreed to introduce a financial discipline mechanism in the area of the CAP. It was decided that agricultural spending in the first pillar of the CAP (marketrelated expenditures and direct payments) would be frozen in real terms for each year in the period 2007-2013 at the level of expenditures for 2006 (European Council, 2002b: 5)192. This implied that the agricultural budget which at the time 190

In early autumn of 2002, there were concerns about ratification of the Treaty of Nice in Ireland, after the Irish public had rejected the document in the first national referendum in June 2001. However, in the second referendum, held on 19 October 2002, Irish voters supported the Treaty and the last obstacles to include new member states to the EU were removed. Apart from problems with the ratification of the Nice Treaty, there were also concerns related to the impact of the government crisis in the Netherlands, which had arisen in October of 2002 in connection with problems within the coalition government formed by the Christian Democrats and the radical, ultra-right List Pim Fortuyn. However, the conflict was defused and the incumbents got the green light to decide on the final financial package for the new member states. 191 According to the Berlin scenario, total commitment appropriations for the new member states in 2004 were to amount to 11.610 million euro, in 2005 14.200 million euro and in 2006 16.780 million euro. (European Council, 1999a) According to the Brussels decisions of October 2002, these sums were lowered to 10.080 million euro for 2004, 12.601 million euro for 2005 and 14.964 million euro for 2006 (Danish Presidency, 2002b). 192 According to the agreement, if expenditure for market support and direct payments is expected to exceed the established ceiling minus a safety margin set at 300 million euro, direct payments will be reduced.

192

6 The EU-Polish accession negotiations on agriculture of the summit amounted to about 40 billion euro, and after the accession of 10 new member states would increase to about 45 billion euro, would be kept in real terms at this level in the following years, up to 2013. The agreement to stabilise spending on the CAP was the basic condition for Germany’s consent to French demands to delay the most radical elements of the CAP reforms to the next budgetary perspective starting in 2007. The German government got an assurance that Germany’s contribution to the Community’s budget would not rise during the next financial perspective and would stay at the level of the 2000-2006 budgetary period. Proponents of radical reforms perceived the Franco-German compromise as a possible danger for introducing fast and far-reaching changes in the CAP193. Especially Great Britain hoped that the CAP reform would still be enacted in the current budgetary period. However, the member states supporting radical changes in the CAP were in a minority and could not block the decision on putting off the reform. Furthermore, the rejection of the Franco-German deal would have threatened the enlargement process, therefore it was not seriously considered. The Franco-German agreement to stabilise agricultural spending in the enlarged Union opened the way to the final decisions on financing the EU eastern enlargement. The Brussels European Council decided that the acquis concerning budgetary resources of the Union would fully apply to the new member states from accession. The CEECs were then expected to pay full contributions to the EU budget; at the same time those individual candidate countries for which the cash flow balance with the EU budget would be negative, compared to the year 2003, were to be offered a temporary budgetary compensation (European Council, 2002b: 6). A few days after the conclusion of the Brussels European Council, the EU presented its official negotiating position on direct payments. The EU repeated its June declaration that direct payments are part of the acquis and added that, as part of the acquis, they ‘must be applied in all Member States, with transitional modalities to be adopted with the candidate countries in the Treaty of Accession’ (CAEU-P: CONF-PL 81/02, 2002: 3). Thereby the EU formally approved the phasing-in mechanism for direct payments to be applied in the new 193

Blair anger at EU farm deal, BBC News, 25 October 2002.

193

6 The EU-Polish accession negotiations on agriculture member states. It was decided that phasing in would take place within the framework of financial stability for agricultural expenditures decided at the Brussels European Council. This implied adjustments in the expenditures on direct payments, in case the budgetary ceiling was exceeded. At the same time, old member states were obliged to reduce direct payments to their producers in the future in order to level the payments in new and old member states as soon as possible. The detailed mechanism of the phasing-in system of direct payments for the newcomers agreed on in Brussels was the same as that proposed by the Commission in January 2002. Finally, the process of EU internal negotiations on the terms of the CEECs accession was concluded at the General Council’s meeting on 18 November. The EU foreign ministers agreed that the accession of the ten candidate countries should take place on the 1st of May 2004, so that the new member states could participate in the elections to the European Parliament scheduled for June 2004 (Council of the European Union, 2002c). 6.5.3

Level II developments in Poland in the final stage of the negotiations

The general elections, held in September 2001, gave victory to the postcommunist party – Democratic Left Alliance (SLD) and its coalition partner Labour Party (UP). The SLD/UP formed a left-of-centre coalition together with the Polish Peasant Party (PSL). The change in government also brought changes in the Polish negotiating team. Jan Truszczyński was appointed as new chief negotiator and Danuta Hübner as new minister for European Affairs. The rural PSL took over the lead of the Ministry of Agriculture and Rural Development. Its leader, Jarosław Kalinowski was appointed the minister of agriculture. Therefore, the new negotiating team entered the end-game of the accession negotiations with the EU with much stronger representation of rural interests in the government. Two clashing camps in the Polish negotiation team emerged. The first camp was connected with the senior coalition party – SLD and centred around the ministry for foreign affairs and the Committee for European Integration. The leading officials here were the foreign affairs minister, Włodzimierz Cimoszewicz, the chief negotiator, Jan Truszczyński and the minister for European Affairs, Danuta 194

6 The EU-Polish accession negotiations on agriculture Hübner. The second camp came from the ministry of agriculture – besides the ministry of finance, the second most powerful ministry in the Polish government. The new governing coalition changed the strategy for conducting the accession negotiations with the EU194. The government decided to speed up the pace of the accession negotiations and promised to look for compromises in all negotiation areas, but without giving up Poland’s vital interests (Europejska Strategia Rządu, 2001). When compared with the hard-line position of the previous government, the newly elected government’s approach to negotiations with the EU was fundamentally more moderate. The basic aim of the new government was to conclude the negotiations by the end of 2002, according to the timetable set in Nice. The Polish government was also determined to enter the Union before the start of the EU internal negotiations on the next financial perspective and reforms of the Common Agricultural Policy. The new government showed basically greater understanding of EU concerns in some of the key negotiation areas, i.e. in the chapter on free movement of persons and in the chapter on free movement of capital. Considering the former, some of the incumbents, particularly Germany and Austria, were concerned about a massive flow of cheaper workforces into their labour markets and battled for quite long transitional periods. In the chapter on free movement of capital, the incumbents aimed instead at shortening the transitional periods Poland sought, in particular at shortening the extremely long, eighteen-year transitional period for buying agricultural land. There were important divergences within the Polish government as regards this issue; the SLD/UP politicians were generally prone to shorten transitional periods for buying real estates in Poland, while the rural PSL strongly opposed liberalisation in this area. Nonetheless, the government decided to modify its position in this area – the transition period for buying agricultural and forest real estate by foreigners was shortened to 12 years, and the transition period for buying so-called second residences to 7 years. The government also resigned from transitional periods for acquisition of land for investment purposes. 194

The new strategy was adopted on 15 November 2001, soon after the new government was appointed.

195

6 The EU-Polish accession negotiations on agriculture Furthermore, according to this proposal, farmers from EU countries could buy agricultural land already after three years of leasing. This element of the Polish negotiating position has been politically very touchy and has evoked a great outcry from the rural and anti-EU parties. Domestic conflicts over the issue of buying agricultural land by foreigners sharpened when it turned out that the Polish ministry for foreign affairs informed the EU about this crucial change in the Polish negotiating position without consulting the coalition partner PSL and political parties of the opposition. Finally, the compromise solution devised by the Polish authorities envisaged shortening the transition period for selling land to foreigners and to divide Poland into two parts – western and eastern, with different lengths of transitional periods for EU citizens wishing to buy agricultural land – agricultural land in the western part of the country could be bought after seven years of leasing and in central and eastern parts of Poland after three years of leasing. Though the new government adopted a less restrictive negotiating position, showing willingness to compromise in some of the core areas of the negotiations, it did not withdraw from the basic negotiation requests concerning budgetary issues and full inclusion of the agriculture sector in the EU market and the CAP.

6.5.3.1 Domestic reactions in Poland to the Commission’s January proposals Poland reacted to the Communication of the Commission the same day the document was published and rejected its major proposals. The Polish negotiators underlined that the Commission’s paper de facto determined the level of EU subsidies for Poland not only during the first years of membership (2004-2006) but also during the next financial perspective (2007-2013), which had not been decided yet. Not rejecting the idea of transitional periods in agriculture, the Polish negotiators did not want to agree to their extension into the next financial perspective. The acceptance of this proposal would imply that Poland after accession would have very limited possibilities to influence the shape of the common budget for the years 2007-2013. The Polish government argued that

196

6 The EU-Polish accession negotiations on agriculture there was no economic and legal justification for such a long transitional period and for setting direct payments in the first year of membership at a very low rate, equivalent to 25 percent of the direct support granted to EU farmers. The long transitional period proposed by the Commission was contrasted with the short, 3to 4-year, transitional periods in agriculture requested by the Polish government195. Hence, the Polish government expressed strong disapproval of the Commission’s communication: In the documents of the European Commission up until now, the necessity for concluding negotiations with the candidate countries on the basis of Agenda 2000 assumptions and its financial perspective has been underlined. The current proposal is going beyond this time-frame. (....) For the first time the proposal of granting direct payments for farmers from countries acceding to the EU appeared in the Community’s document, which should be considered as a positive outcome of our activities in this area. The government also welcomes the proposal to make the CAP instruments more flexible and more adjusted to the conditions of agriculture in the candidate countries. At the same time, the proposed initial level of direct payments (...) is highly unsatisfactory. The proposal of a 10-year transition period for introducing full direct payments cannot be accepted (Position of the Polish Government on the European Commission’s Communication, 30 January 2002)196.

The proposal of a phasing-in mechanism was described as an attempt to test the possibility of co-existence of two agriculture policy systems – one for the EU-15 and the other for the new member states. The Commission’s proposal was subject to fierce criticism especially on the part of Polish rural parties and the minister of agriculture, Jarosław Kalinowski197. According to the Polish negotiators incomplete direct payments extended over such long transitional period implied unequal competition conditions within the single market, and a deterioration of the competitive position of large scale and commercial farms198. In March 2002, the Directorate General for Agriculture of the European Commission published the study ‘Analysis of the Impact on Agricultural Markets and Incomes of EU Enlargement to the CEECs’ that was basically aimed at 195

Interview with Jerzy Plewa, the Polish deputy minister responsible for conducting the accession negotiations in the agricultural sphere, Warsaw: 17 October 2002. 196 Author’s own translation. 197 E.g. Kalinowski’s speech in the European Parliament on 18 February 2002 (First Ministerial Exchanges on Agricultural Plans, Enlargement Weekly, 25 February 2002) and at the first meeting between agricultural ministers of the candidate and EU countries on 19 of March 2002 (A week of agriculture, Enlargement Weekly, 25 March 2002). 198 Rzeczpospolita, No. 67, 20 March 2002.

197

6 The EU-Polish accession negotiations on agriculture strengthening argumentation included in the Commission’s document of 30 January 2002199. However, the Polish government continued to repeat that the offer in the area of direct payments was highly unsatisfactory for Poland. Polish government argued that full direct payments would not add to social inequalities in rural areas since they would diminish disparity between farmers’ incomes and incomes earned outside agriculture only by few percent. It was also stressed that the downward trend in agricultural production would probably remain after accession to the EU and, without direct payments, Polish agricultural production would prove to be less competitive and would further decline200. Furthermore, Poland was rather sceptical as regards substituting lower direct payments for higher structural expenditures. The latter required co-financing and preparing specified programmes which rendered them less attractive. Direct payments instead would be paid to farmers automatically and would not require preparing special projects for their use from the farmers’ side. Overall, the European Commission proposals met with fierce criticism not only from the Polish government, but also from the Polish public. Obviously farmers were the strongest critics of the Commission’s proposal – as many as 80 percent of farmers believed that Polish negotiators should fight for full direct payments starting from the first year of membership in the EU 201. Farmers’ 199

In the document, the Commission repeated the arguments included already in the Agenda 2000. The Commission examined three different accession scenarios. The Commission scrutinised possible consequences of accession without direct payments for the eight CEEC (without Bulgaria and Romania) and accession with full direct payments for farmers in the new member states. According to the study results, even accession without direct payments, thanks to traditional market support instruments - guaranteed prices and export subsides - would bring favourable income increases in the CEECs. Concerning the scenario accession with full direct payments, the Commission study, like the previous studies, highlighted that farmers’ income would rise far above the national wage level, which in turn would increase inequalities in rural areas. Furthermore, it would create incentives for farmers to stay in agriculture hampering the pace of structural changes. In these conditions, differentiation in the level of direct payments has appeared as an adequate policy solution. The Commission argued that different direct payments for the newcomers and the incumbents would not imply unequal competition conditions, since the purchasing power of direct payments would be higher in the new member states than in the EU-15. (European Commission, 2002c: 65). 200 Analysis and Evaluation of the European Commission Proposal of January 30th, 2002, (2002). 201 It is worth noting that after the announcement of the Commission proposal, the public support for EU integration somewhat declined in Poland. The percentage of persons who were to support Poland’s accession in EU referendum declined by 4 percent (to 65 percent), while the percentage of persons opposing EU integration increased by 6 percent (to 24 percent). However, this change

198

6 The EU-Polish accession negotiations on agriculture expectations regarding the conditions of Polish agriculture’s integration to the EU were then very high. Also the general public supported the government’s endeavours to ensure the best possible conditions of accession for Polish agriculture. As many as 59 percent of Poles held the view that Polish negotiators should strictly demand full direct payments, even if it would entail a delay in Poland’s accession to the EU. Only 25 percent of Poles considered the Commission’s proposal as acceptable for further negotiations (Roguska, 2002a). In the following months the opinion of the public on the issue of agricultural integration became more moderate. However, the majority of Poles still supported a tough bargaining stance of the government on the issue of direct payments (Roguska, 2002b). Notwithstanding, despite the strong disapproval of the Commission’s proposals on agriculture by the Polish public, at that stage of the negotiations an important shift in the position of the Polish government on agricultural issues could be observed. Careful analysis of government official statements shows that the idea of differentiation of support for farmers in the old and new member states as such was not the major subject of Polish criticism. The fundamental criticism referred to the length of the transitional period and the starting level of direct payments. However, as the European Commission’s proposal did not represent an official position of the EU member states, the Polish government still stood by its requests for full direct payments. In the revised negotiating position on agriculture of May 2002, the Polish government urged the EU member states to adopt their position on the key issues for negotiations in the agriculture chapter, especially on direct payments, stressing that the lack thereof had been a significant obstacle for Poland to make binding commitments on other issues, in particular on those concerning supply-control instruments (CAEU-P: CONF-PL 43/02, 2002).

was only of a transitory nature. In the following months, the support for EU integration returned to the previous level. See: Roguska (2002c).

199

6 The EU-Polish accession negotiations on agriculture 6.5.3.2 Poland’s preparations for final negotiations The political standing of the government in the domestic arena had significantly declined in the months preceding the planned conclusion of the accession talks. In March 2002 public support for the government of Leszek Miller considerably weakened202. Aiming at strengthening his position in the domestic arena, the Polish Prime Minister focused on issues of foreign policy and the negotiations with the EU. Favourable developments in the international arena, and particularly the successful conclusion of the accession negotiations with the EU, were considered the basic way for raising the government’s political standing domestically. As the results of the accession talks were to be subject of public evaluation during the national referendum, the Prime Minister decided to announce in April 2002 that, in case of unfavourable negotiation results and a lost accession referendum, the government would resign. This political declaration was to make the government’s policy on European integration more plausible and at the same time to confirm the strong commitment of the Prime Minister to negotiate the best possible conditions for Poland’s accession to the EU. The two fundamental aims of the government for the final stage of the negotiations were to persuade the EU negotiators that Poland should not pay a full contribution to the EU budget and that farmers should receive direct payments that would ensure equal competition within the Single Market. Considering the budgetary issues, already the previous government asked for a five-year transitional period as regards paying a full contribution to the EU budget. Faced with a serious crisis in public finances, the new government attached even greater importance to the results of the negotiations on financial and budgetary issues203. As already mentioned, the government was strongly determined not to allow

202

The number of the government’s supporters declined from 36 percent to 30 percent, and the number of persons opposing the governing coalition rose from 24 percent to 28 percent (see: Strzeszewski, 2002) In the following months, the number of persons negatively evaluating Miller’s government grew significantly; in June 2002 as many as 51 percent of the public had a negative opinion of the ruling government coalition. See: Strzeszewski/Wenzel (2002). 203 At the end of 2002, public debt amounted to about 47,5 percent of the GDP and the budgetary deficit for 2002 amounted to about 38 billion PLN. The budgetary deficit for 2003 was to amount to 43 billion PLN, that is about 4,9 percent of the GDP. The difficult situation in public finances

200

6 The EU-Polish accession negotiations on agriculture extending transitional arrangements into the next financial perspective204. In reply to the EU Common Position on agriculture of 20 June 2002, the Polish chief negotiator, Jan Truszczyński, stressed that there was ‘an obvious gap between Poland’s full contribution to the EU budget, as expected by the Member States, and a limited participation of Poland on the expenditure side of the EU budget’’205. At the Brussels European Council in October 2002, the incumbents agreed to cut financial means for eastern enlargement. The government argued that the adoption of the EU financial conditions as well as the adoption of EU requirement as regards full contributions of new member states to the EU budget would imply that Poland's net budgetary position in the first years after accession would be worse than in the last pre-accession year. Therefore the Polish government, as well as governments of the remaining candidate countries was faced with an additional negotiation problem – to persuade the EU member states about the necessity of using all funds provided for in the Berlin agreement of 1999 and to win high budgetary compensation. Concerning direct payments, in November 2002, after the EU officially confirmed that the phasing-in mechanism for direct payments was the only possible solution for the candidate countries, the Polish negotiators officially stated that Poland would be ready to accept the proposed phasing-in mechanism for direct payments, however for a short transitional period. At the same time, the Polish negotiators proposed additional measures that were to guarantee equal conditions of competition on the Single Market, namely: -

supplementing direct payments with means from the second pillar of the CAP, devoted to rural development;

-

transitory application of selective protection of the Polish market in some of the agri-food products imported from the EU, should the first solution prove

gave rise to conflicts within the government and in July 2002 finance minister, Marek Belka, a proponent of tighter fiscal policy, resigned (Rzeczpospolia, No. 155, 5 July 2002). 204 Agriculture and the Financial Framework of Enlargement – the Polish view (2002). 205 Statement of Mr. Jan Truszczyński, Government Plenipotentiary for Poland's Accession Negotiations to the European Union, at the Conference at deputy level, Brussels, 28 June 2002.

201

6 The EU-Polish accession negotiations on agriculture insufficient to secure equal competition conditions (CAEU-P: CONF-PL 96/02, 2002). The Polish government held the view that the large amounts for structural and cohesion operations, provided for the new members, were impractical. With the requirement of co-financing and a great deal of preparatory as well as administrative work, Polish authorities found it difficult to use all the means from the structural and cohesion funds. Therefore, Polish negotiators put forward the proposal to shift 25 percent of means from a rural development fund (second pillar of the CAP) to a direct aid scheme (first pillar of the CAP). In contrast to the European Commission’s view of the CAP future, according to which the financial resources should be redirected from the first pillar to the rural development programmes, that is the second pillar – the Polish government requested a reverse transfer. At that stage of the negotiations, the Polish government was rather reluctant to formally accept the solution assuming topping up of direct payments with means from the national budget (CAEU-P: CONF-PL 96/02, 2002). Due to the high budgetary deficit, high costs of preparations for EU accession, and the need of reserving resources for cofinancing EU structural funds, additional support for agriculture from the national budget was rather limited. Poland sceptically approached the idea of supplementing EU direct payments with national payments also because of concerns that such a solution would establish a precedent by substituting the CAP with agricultural policies of a national character. There was no support for such a solution in the domestic arena in Poland. However, opposition from agricultural groups and rural parties against incomplete payments did not allow the Polish negotiators to completely exclude the possibility of topping up direct payments with national means. In the last months of the accession talks, domestic farm groups and rural parties clearly increased their lobbying activities. In October 2002, the Polish Agriculture

202

6 The EU-Polish accession negotiations on agriculture Council, consisting of major Polish agricultural organisations, was established206. According to the official statement, the main aim of the Council was to lobby for more beneficial conditions of accession to the EU in the area of agriculture. On 6 November 2002 the Polish Agriculture Council made an appeal to government officials, to the Polish negotiators and to the European Commission. (...) we warn, that if the Chief Negotiator, and then the government adopt the EU proposal, which makes Polish farmers and all of Polish society into citizens of the ‘second category’, devoid of some part of the rights to which EU members are entitled, our hereby presented stance will be reflected in the outcome of referendum on Poland’s accession to the EU. (...) We forewarn, that integration based on terms violating the rules of the Single Market, that is equal competition conditions, will entail serious disturbances within the European Union, being contradictory to the long-term interest of a United Europe (Petition of the National Council of Agricultural Chambers, 2002)207.

Though public opinion polls indicated that the majority of the Polish public would have supported accession to the EU in the referendum, the Polish government was concerned about the turnout and possibility of an outbreak of farmers’ protests. On November 14, the Polish Agriculture Council organized a demonstration of farmers in Warsaw, demanding from the Polish negotiators to reject the EU proposal of a phasing-in mechanism for direct payments. Also limits and quotas for agricultural production proposed by the EU were considered unacceptable. Guided by farmers’ discontent with the course of the negotiations with the EU thus far, the Polish minister for agriculture, Jarosław Kalinowski, announced at the end of November that the PSL would withdraw from the government if the negotiations in the area of agriculture did not produce an acceptable outcomes208. Kalinowski and the negotiators linked to the ministry of agriculture were under much pressure from domestic agricultural organizations209. 206

The Council was established by the eight largest agricultural organizations - the National Council of Agricultural Chambers, National Cooperative Council, Solidarity of Individual Farmers, Self-Defence, the Federation of Agricultural Producers’ Unions, Federation of Agricultural Employers, Leaseholders and Owners, the Trade Union of Agricultural Employees of the Republic of Poland, the Trade Union ‘National Centre of Young Farmers’ (Information from the Polish Ministry of Agriculture and Rural Development, October 2002). 207 Author’s own translation. 208 PSL mówi nie, Rzeczpospolita, No. 278, 29.11.2002. 209 The following weeks saw continuing activities of farm lobbies in Poland. One of the biggest actions in the run-up to the final negotiation session with the EU was the Summit of Agricultural Orgnizations of the ten candidate countries, organized in Warsaw on 8 December 2002 by the

203

6 The EU-Polish accession negotiations on agriculture Additionally, anti-EU parties, particularly the populist Self-Defence, wishing to win over the PSL’s rural voters, fiercely criticised the course of the negotiations on agriculture. Kalinowski was faced with significant opposition not only from Self-Defence, but also from the PSL hard-liners who stressed the necessity of changing the party’s leadership210. Threatened with losing rural voters and leadership in the PSL, the minister of agriculture adopted an extremely tough bargaining position in the negotiations with the EU. He continued to press the negotiating team to fight for a higher milk quota and for augmentation of direct payments above the 40-percent ceiling. Taking into account the insurmountable opposition of EU member states towards full direct payments for the newcomers financed from the common budget, the agriculture minister insisted on the possibility of topping up direct payments from the national budget to 100 percent. Before the planned final negotiating meeting with the EU in Copenhagen, the Agriculture Minister issued a special statement concerning the accession talks on agriculture, in which the very restricted negotiating-set of Poland was highlighted: (...) We cannot concede a millimetre on issues related to the production quotas for milk as well as on the issue of direct-payment levels. The Union is trying to impose a ceiling on direct payments, which could not be exceeded, even if we were able to do it. This is interference to our internal affairs and undermining the basic principles which the European Union has followed so far. The proposal of a ceiling and its differentiation for different countries is unacceptable (...)211.

The position of the junior coalition partner on agriculture issues was reflected in the Polish government’s strategy for the final phase of the negotiations. Faced with threats from the Polish Peasant Party and with the threat of social tensions in rural areas, the Polish government was determined to secure the highest possible ceiling of direct payments financed from the EU budget as Polish agricultural circles, KZKiOR. The summit repeated the demands of farm groups concerning equal treatment of farmers in the enlarged Union and direct payments at the same level as in the old EU member states and once again threatened rejection of the accession treaty (Chcemy więcej od Brukseli. Rząd podtrzymuje stanowisko negocjacyjne, Rzeczpospolita, No. 286, 9 December 2002). 210 Cf. Olczyk, E., W PSL wrze. Przeciwnicy Kalinowskiego szykują się do natarcia, Rzeczpospolita, No. 282, 4 December 2002. 211 Statement of the deputy Prime Minister, Minister for Agriculture and Rural Development Jarosław Kalinowski, concerning the negotiations with the European Union, Ministry of Agriculture and Rural Development, Warsaw, 11 December 2002 (author’s own translation).

204

6 The EU-Polish accession negotiations on agriculture well as the possibility of topping up direct payments with means from the national budget. Not only the activities of farm lobbies and the policy of the Agriculture Ministry, but also the clearly anti-EU position of Self-Defence and the League of Polish Families significantly limited the government’s leeway in the final stage of the negotiations with the EU. Overall, pressures from farm lobbies, the weakened political position of the Prime Minister and of the government and serious problems with public finances in 2002 were the most important domestic developments which influenced the Polish negotiating position in the final stage of the accession talks with the EU. Fundamentally, three issues were indicated as Polish priorities for the final stage of the negotiations with the EU – higher direct payments, higher budgetary compensation, and bigger production quotas.

6.6

Final negotiations at Level I - the European Council in Copenhagen: December 2002

The process of the accession negotiations with the eight CEECs, Cyprus and Malta was to be formally concluded at the European Council in Copenhagen scheduled for 12 and 13 December 2002. To finally end the negotiations, both negotiating parties had to yet agree as to the budgetary issues and the key elements of the agricultural deal. All other issues, including problematic areas of free movement of labour, free movement of capital and environmental issues, were already decided. Reaching a compromise in Copenhagen was considered as a historical event of uniting the European continent. Both the EU and the CEECs’ politicians expected that the planned summit would successfully bring to an end the process launched at the European Council in Copenhagen in 1993. Also the Catholic Church urged the negotiating parties to come to a final agreement in Copenhagen212. This solemn atmosphere was considered as essentially removing 212

In the special declaration ‘Hope, Trust and Solidarity’ issued before the Copenhagen European Council, the Commission of the Bishops’ Conferences of the European Community stressed that the process underway should not be labelled ‘enlargement’ but ‘europeanisation’ of the EU. The European Bishops called on European leaders to decide on the conditions of the accession of the new member states in a spirit of solidarity (Commission of the Bishops’ Conferences of the European Community, 2002). There were also other political appeals, coming from different

205

6 The EU-Polish accession negotiations on agriculture the threat of a failure of the final negotiating session. Nonetheless, the candidate countries still aimed to negotiate better financial conditions of their accession, which would require a great deal of modifications in the EU internal agreement adopted in Brussels and could have resulted in protracted negotiations. Fundamentally, in the last months of the negotiations, the CEECs showed a willingness to cooperate and to fight together for better financial conditions. They all opposed the EU proposal to allocate proportionally much less to their agriculture sectors. Later on, when the possibilities of winning concessions from the EU in the agriculture chapter proved highly limited, the candidates jointly furthered the idea of supplementing direct payments with funds from the rural development scheme and national budgets. Furthermore, the governments of the candidate countries argued that the budgetary contribution of the newcomers should have been lowered in the same proportion as direct payments for the newcomers had been lowered213. However, except for the formal statements, no other joint actions during the negotiations with the EU were undertaken. Part of the responsibility for a successful conclusion of the accession talks fell on the Danish government which took over the Union’s presidency in July 2002. In the run-up to the summit in Copenhagen, the Danish presidency prepared a compromise proposal concerning budgetary issues and direct payments (Danish Presidency, 2002a). The original proposal of the Danish presidency was considered by the EU member states too favourable for the candidate countries. However, after internal haggling, the proposal was modified and finally adopted as the basis for the final negotiating session (Danish Presidency, 2002b). The EU consented to the candidate countries’ request for topping up direct payments with means from the rural development fund. The Danish presidency proposed to shift 20 percent of the means originally allocated to rural development to top up direct payments to 40 percent of the payments applicable in the old member states. The incumbents also determined the exact sums of budgetary compensations for new

states, institutions and environments, which had been calling for a constructive conclusion of the accession negotiations, e.g. an appeal from former German president Richard von Weizsäcker and former Polish Prime Minister Tadeusz Mazowiecki.

206

6 The EU-Polish accession negotiations on agriculture member states. Some candidate countries, namely Cyprus, Lithuania, Latvia, Estonia and Slovenia, were ready to accept the EU compromise proposals and close the negotiations on agriculture yet before the Copenhagen summit. The negotiators from Poland, Hungary, the Czech Republic and Slovakia presented basically a more tough bargaining stance, expecting that during the final negotiating session in Copenhagen they would be able to win somewhat better conditions for agriculture214. The Prime Minister of Denmark, Anders Fogh Rasmussen, warned the Polish government and the governments of the other candidate countries against delays in the negotiations if they decided to make unrealistic demands. Fundamentally, the EU negotiators did not really expect that the Polish delegation would present the whole package of negotiation requests during the final negotiating session215. Therefore, the ending of the accession talks at the Bella Center in Copenhagen was very dramatic and full of tensions. Polish negotiators continued to battle for a higher lump sum compensation and on its reimbursement not only in 2004 but in all three opening years of membership (2004-2006). According to the compromise proposal of the Danish presidency, Poland was to receive a special cash flow facility of 443 million euro for the year 2004. However, Warsaw argued that the amount of the lump sum compensation should be increased by one billion euro to ensure that Poland’s net budgetary position would be no worse than in the last pre-accession year. The 213

Meeting of the Ministers of Foreign Affairs of Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia in Prague on 22 October 2002. 214 The Prime Ministers and ministers for foreign affairs of the Visegrad countries met many times to discuss financial aspects of the accession to the EU. On 1 December the Prime Ministers met in Budapest to discuss the financial package proposed by the Danish presidency and to develop possible common tactics for the final phase of the negotiations. A few days before the Copenhagen summit, at the meeting in Smolenice, in Slovakia, the Polish, Czech, Slovak and Hungarian governments reiterated their willingness to fight in the spirit of solidarity for more beneficial conditions of their membership till the last minutes of the negotiations, particularly for restoring the financial package for enlargement provided for in the Berlin scenario and for shortening the transitional period in agriculture. The cooperation between the candidate countries was negatively affected by the contentious issue of the Benes decrees which were introduced in Czechoslovakia after the Second World War and which still were negatively affecting Czech-Hungarian and Slovak-Hungarian relations. See: Niewiadomski, A., Bielecki J., Wspólna taktyka: Solidarność tylko w słowach, Rzeczpospolita, No. 280, 2 December 2002. 215 In the interview for Rzeczpospolita the Polish Prime Minister admitted that he had had an impression that the EU representatives wanted the candidate countries to formally recognize all negotiation issues as already settled and to prepare for the ending ceremony (Rzeczpospolita, No. 292, 16 December 2002).

207

6 The EU-Polish accession negotiations on agriculture Polish government also insisted on increasing the resources to be reallocated from rural development programmes to direct payments from the 20 percent proposed by the Danish presidency to 25 percent, as well as on increasing the overall ceiling for direct payments. The EU negotiators showed readiness to accept the request for topping up direct payments to a certain level with national resources. However, they did not agree to change the proposed amount to be reallocated from the rural development fund. Notwithstanding, the room for manoeuvring in the area of direct payments substantially enlarged in the last months of the accession talks; though the member states did not agree to devote more than 20 percent of the rural development fund’s resources to direct payments, they were prone to change the proportions between the individual years up to 2006. Also, in the area of the budget, the Polish government’s chances to win more favourable conditions substantially increased. The proposal to offer higher grants for a special cash-flow facility improving Poland’s budgetary position after accession was backed by the German Chancellor Gerhard Schroeder 216. Fundamentally, only in the area of milk quotas did the EU member states maintain a quite uncompromising stance. Due to unyielding positions of both negotiating parties, it was expected that the process of agriculture negotiations between Poland and the EU would reach a stalemate. In order to win concessions in this area, the Polish Prime Minister resorted to the argument of the possible collapse of the government. In the critical moment of the talks on agriculture the Prime Minister informed his Danish counterpart that, due to the unyielding position of the EU, the Polish coalition government had collapsed: Listen, the Prime Minister of a minority government is sitting in front of you; my coalition partner just told me that due to your obstinacy regarding milk quotas, he is leaving the coalition. Maybe I will retain office for some time, but later you would have to negotiate with another Prime Minister from Poland. And he would be rather closer to Le Pen or Heider. Maybe you do not care about what happens in Poland, but these problems concern not only

216

It is worth noting that two weeks before the Copenhagen summit the Polish Prime Minister Leszek Miller met with the German chancellor in his private house in Hannover to discuss the issues of direct payments and budgetary compensation.

208

6 The EU-Polish accession negotiations on agriculture Poland but Europe as a whole. And I do not dramatize the situation; I am not deceiving you217.

According to the Polish Prime Minister’s evaluation, this negotiation ploy proved efficient and brought the expected results. The EU representatives were afraid of a possible collapse of the Polish government. Since the last general elections, the position of the populist Self-Defence and the ultra-nationalist League of Polish Families had strengthened in Poland and early parliamentary elections could have brought unwanted political results. Consequently, the EU negotiators decided to reconsider the Polish negotiating requests concerning agriculture and budgetary issues. As the overall ceiling for financing eastern enlargement was already decided and could not be subject to negotiation, the only way to reach a compromise was to allow the Polish government to distribute some part of the available financial means towards its preferred aims and chosen support schemes. Similarly, the overall milk quota consisted of three subquotas, which enabled the EU negotiators to change the proportions according to the preferences of the Polish government. Overall, the Polish government won important concessions from the EU in all three areas indicated as Poland’s national priorities – improving the budgetary position through a special cash-flow facility, direct payments and the milk quota. Though the overall financial offer for Poland had not been changed as such, the conditions of accession negotiated in Copenhagen allowed the Polish Prime Minister to declare full victory. The exact outcomes of the accession negotiations on agriculture will be presented in the following 6.6.1

Outcomes of the accession negotiations on agriculture

6.6.1.1 Overall financial conditions As already highlighted, ensuring higher amounts for agriculture as well as a better budgetary position for Poland in the first year after the accession was possible only

through

the

reallocation

of

means

217

among

individual

headings.

The relation of the Polish Prime Minister as reproduced in a press interview in Rzeczpospolita (No. 292, 16 December 2002; author’s own translation).

209

Table 6.1 Maximum enlargement-related appropriations for commitments218 (mio. euros 1999 prices, 2004-2006 (for 10 new member states) (data in Berlin ceiling for 6 new member states) Berlin ceiling (March1999)

Proposal from the Commission (30.01.2002) (for 10 new MS)

(for 6 new MS) 2004 Agriculture 2.450 Of which CAP (direct payments and market support) *

Proposal of the Danish Presidency (10.12.2002) **

2005 2.930

2006 3.400

2004 2.048

2005 3.596

2006 3.933

2004 1.892

-

-

516

1.922

2.152

322

2005 3.741

Final outcomes – Copenhagen summit (12-13 December 2002)

2006 4.137

2004 1.897

2005 3.747

2006 4.147

2.312

327

2.032

2.322

2.025

Rural devel. 1.532 1.674 1.781 1.570 1.715 1.825 1.570 1.715 1.825 Total for 2004-2006 8.780 9.577 9.770 9.791 Structural operations 7.920 10.000 12.080 7.067 8.150 10.350 6.335 7.275 9.237 6.095 6.940 8.812 Total for 30.000 25.567 22.846 21.847 2004-2006 Internal policies 790 820 850 1.176 1.096 1.071 1.421 1.375 1.350 1.421 1.376 1.351 Total for 2004-2006 2.460 3.343 4.147 4.148 Administr. 450 450 450 503 558 612 503 558 612 503 558 612 Total for 2004-2006 1.350 1.673 1.673 1.673 Total 11. 610 14.200 16.780 10.794 13.400 15.966 10. 151 12.949 15. 337 9.952 12. 657 14. 958 Total for years 2004- 42.590 40.160 38.437 37.567 2006 Heading X, of which: 1.985 3.285 Special cash-flow 998 998 650 550 facility Budgetary 262 429 296 262 479 346 compensation * Data for 2004 include only market expenditures, without direct payments, since according to EU budgetary procedure they are reimbursed from the budget the next year. ** Proposals taking account of the decisions of Brussels European Council of 25.10.2002. Source: On the basis of the EU official documents: Financial perspective 2000-2006 - EUR21, Berlin March 1999; European Commission, 2002b; Danish Presidency, 2002b; European Council, 2002c. 218

The EU budget distinguishes between commitment appropriations and payment appropriations. Commitment appropriations cover the total cost of legal obligations entered into during the current financial year in respect of operations to be carried out over a period of more than one financial year. The term payment appropriations is used to indicate the amount of money available to cover expenditure from commitments that entered into during the current and/or preceding years (European Commission, 2002h: 135).

A comparison between the initial EU proposal and the finally negotiated financial terms of the CEECs accession shows that the expenditures for agricultural sectors in the ten new member states rose by about one billion euro219. The better financial conditions for agricultural producers in the CEECs were basically achieved at the expense of expenditures for structural operations and somewhat lesser expenditures for rural development under the second pillar of the CAP. Total enlargement-related appropriations for commitments in the area of structural operations for ten new member states fell by almost 30 percent when compared with the ceiling set in Berlin. The EU member states decided to increase appropriations for commitments not only in the area of agriculture but also in the area of internal policies. Also the agreement with Poland in the field of financial and budgetary provisions provided for the reallocation of 12 percent of the structural funds to balance Poland’s budgetary position in the first years of membership. This way the Polish government received the right to reallocate an additional billion to a temporary special cash-flow facility220.

6.6.1.2 Direct payments, other CAP instruments and special provisions The compromise reached in Copenhagen assumed that total direct payments in the new member states in the years 2004, 2005, 2006 may reach 55, 60 and 65 percent of payments applicable in the EU. When compared to the original proposal of the European Commission on direct payments and to the official Common Position of EU member states, such a negotiation outcome was considered an important success of the candidate countries. All the more since the EU negotiators for a quite long period of time stood by a position congruent with the decisions of the Berlin European Council and argued that direct payments are not an appropriate instrument for farm sectors in the CEECs. At the final negotiating session, the EU and the candidate countries finally agreed that:

219

This change was quite significant, since the EU member states stressed during the negotiation process that the ceiling for agricultural expenditure decided in Berlin for six new member states was adequate to accommodate the agricultural sectors of ten new member states. 220 Overall, the special cash-flow facility for Poland in the period 2004-2006 was fixed at the level of 1443 million EUR, 443 million EUR to be reimbursed in 2004, 550 million EUR in 2005 and 450 million EUR in 2006 (Report on outcomes of the negotiations for membership of the Republic of Poland in the European Union, 2002).

6 The EU-Polish accession negotiations on agriculture  basic direct payments, fully financed from the EU budget, will start at 25 percent in 2004, 30 percent in 2005 and 35 percent in 2006 of the level of payments applicable in the old member states; they will be rising by percentage steps to reach 100 percent in 2013 of the level then applicable in the EU;  these payments may be topped up to 55 percent of the EU level in 2004, 60 percent in 2005 and 65 percent in 2006; from 2007 the maximum top-up rate, to be entirely financed from national budget, was set at 30 percentage points above the applicable phasing-in level in the relevant year221. Between 2004 and 2006 the negotiated top-ups will be financed from two sources: -

from the EAGGF guarantee rural development allocations in 2004-2006, up to 40 percent of the EU level; the maximum reallocation of means from the rural development fund was set at 20 percent for each year or alternatively at 25 percent in 2004, 20 percent in 2005 and 15 percent in 2006. Consequently direct payments, after topping up with rural development means and national means coming from obligatory cofinancing of structural operations, will increase in respective years to 36, 39 and 42 percent of the EU level;

-

from national budgets up to 55, 60 and 65 percent of the EU level. Overall, the agreement on direct payments has provided for a long, ten-

year transitional period for reaching full direct payments. However, at the same time, it allowed for the candidate countries’ requests to top up payments above the basic level. The EU member states also agreed to grant new member states the right to use a simplified system for distribution of direct payments. New member states were allowed to grant their farmers the basic direct payments in the form of single area payment, decoupled from production222. The Polish government

221

Such top-ups can not result in a level higher than 100 percent of the level of direct payments applicable in old member states. The new member states were also offered an alternative possibility for top-ups of direct payments between 2004-2013, namely the possibility of topping up to the national direct support level applicable in 2003, on a product-by-product basis and increased by 10 percentage points (European Commission, 2003b). 222 According to the negotiated agreement, the scheme is to be applied for a maximum of five years after accession. Notwithstanding, according to the European Commission’s proposals for the

212

6 The EU-Polish accession negotiations on agriculture decided to introduce the simplified system and to distribute payments among all farmers who farm on at least one hectare of land, regardless of production type223. The Polish negotiators also won EU agreement to introduce into the Accession Treaty the provision on a temporary safeguard clause in agriculture. The provision on a safeguard clause reflected the Polish government’s concerns about unequal competition conditions in the enlarged Union resulting, i.a., from the introduction of incomplete direct payments. According to the agreement, the Polish government will have the right to use the safeguard measures against imports of agricultural commodities from other EU member states up to three years after accession if the Polish domestic agricultural market is seriously disturbed due to trade with the other EU member states. Only Poland extracted certain concessions from the EU as regards practical implementation of the safeguard clause, that is the possibility to monitor agricultural trade between Poland and other EU member states by the means of an import licenses system. On the other hand, the EU member states managed to include in the accession agreement provisions on special safeguard clauses to be used during the first three years after accession if the new member states did not manage to implement the whole EU’s acquis. Concerning state aid for agriculture after accession, the Polish government retained the right to continue specific state support schemes, compatible with the EU acquis communautaire. The state will have the right to support farmers with such aid schemes as interest-rate subsidies on investment loans, fuel subsidies, tax exemptions and reliefs. In the period of four years after accession, farmers will be entitled to a low, 3-percent VAT rate on means of agricultural production, on nonprocessed and low-processed farm products and on agricultural extension services. Nonetheless, the Polish government was obliged to eliminate, up to the CAP reforms, decoupling of direct payments should be introduced in the whole Union in the near future. 223 This option was considered far more beneficial for dominant small and semi-subsistence farms than for larger and specialised farms. However, direct payments above the basic level (coming from topping up from the second pillar of the CAP and the national budget) were to be distributed among farmers that produce certain goods supported in the EU. The amount of aid was to be based on the acreage and not on the level of production.

213

6 The EU-Polish accession negotiations on agriculture end of 2004, other forms of state preferences for agriculture, like interest-rate subsidies on agricultural credits for the purchase of working assets for agricultural production as well as for the purchase and storage of agricultural products, and subsidies to purchasing milk. Furthermore, after accession the VAT rates on tractors and agricultural machines will increase from 0 to 22 percent and on building materials from 7 to 22 percent224. Besides traditional support for agriculture coming from the first pillar, direct payments and the market-support system, Polish agriculture and rural areas will be supported with measures of the second pillar of the CAP. Restructuring of agriculture and rural area development in Poland will be promoted with the existing EU schemes – the Less Favoured Areas payments, structural pensions, agri-environmental schemes, afforestation of agricultural land, investments in holdings, improvement of processing and marketing of products, start-up assistance for young farmers, training, diversification of agricultural activities and activities close to agriculture, consolidation of land, agricultural water resources management, support for agricultural advisory and extension services225. Additionally, the EU offered the new member states special measures, taking heed of the specific conditions of farming in the transition countries. The first scheme, support for the semi-subsistence sector, took the form of flat-rate annual aid for the period of five years after accession for farmers aiming to modernize their farms and to produce on the market. The maximum annual amount for flat-rate aid was set at 1.000 EUR per farm, however, the Polish government managed to negotiate an increase in flat rate aid to 1.250 EUR per farm226. The other temporary measure (‘Community standards’ measure), for the period 2004-2006, provides for compensation for farmers that have undertaken restructuring of their farms to meet EU standards regarding environmental protection, animal welfare, hygiene, food safety etc. Furthermore, taking into

224

BIM, No 1-2, Special Issue (2003: 9). BIM, No 1-2, Special Issue (2003: 14-18). 226 Flat rate aid for semi-subsistence farms in the amount of 1.250 EUR per farm was originally included in the proposal of the European Commission of January 2002. However, the member 225

214

6 The EU-Polish accession negotiations on agriculture account the weak performance of producer groups in the transition countries, the EU offered special aid to encourage setting up and performance of producer groups in the first five years of their functioning. To ensure high absorption of EU structural means in new member states, the EU decided to increase the Community’s contribution to the co-financing of structural programmes to 80 percent.

6.6.1.3 Supply management measures Following the EU policy on supply-control measures, the negotiated reference quantities and reference yields reflected recent production figures. The reference quantities for Polish agriculture were finally calculated on the basis of years 19951999. Therefore, in most instances the quotas and limits negotiated by the Polish government were basically lower than the requested quantities. Only with regard to the base area for arable crops, isoglucose and tobacco did the EU offer exceed the reference quantities and quotas proposed by the Polish government. Other reference quantities, both with regard to arable crops, milk and meat sectors were fixed fundamentally below the Polish proposals. One should bear in mind, however, that the Polish postulates concerning production quotas and limits were intentionally overstated in certain instances for bargaining purposes. Table 6.2 Negotiating positions and outcomes of the accession negotiation on supply control measures

9.235

Commission proposal (30.I.2002) 9.207,667

EU Common Position (20.06.2002) 9.217,667

Negotiations’ outcomes (Copenhagen) 9.454,671

3,61

2,96

2,96

3,0

8.875

8.885

9.380

Negotiating issue

Polish position

Base area (for arable crops) in 000 ha (cereals, high protein, oilseeds) Reference yield(tonnes/ha)

Production quotas in 000 tonnes from which Milk quota, 11.217 in 2003 up

states decided to lower the amounts granted under this scheme. Strong pressures from the Polish negotiators forced the EU to make an exception for Polish farmers.

215

6 The EU-Polish accession negotiations on agriculture from which: Deliveries

Direct sale

to 13.740 in 2008 10.506 in 2003 up to 13.176 in 2008

6.956,3

8.500 6.956,4

711 in 2003 down to 564 in 2008

1.918,7

Restructuring reserve

-

-

Sugar A quota B quota Isoglucose A quota B quota Potato starch Tobacco Dried fodder

1.866 1.650 216 20 15 5 260 70 160

1.655 1.590,5 74,5 2,5 2,5 0 90,5 37,9 0

1.655 1.590,5 74,5 2,5 2,5 0 90,5 37,9 0

1.671,9 1.580 91,9 26,8 24,9 1,9 145 37,9 13,5

2.021.000

2.034.309

no position

1.815.430

1.017.000

1.200.625

no position

839.518

2.200.000

857.700

857.700

926.000

1.500.000 720.000

453.314 364.000

325.581 335.880

325.581 335.880

Animal premium ceilings (heads) Slaughter premium: - adult cattle -calves Special beef premium - Suckler cow premium - Ewe premium

464 1.918,9 416 -

Sources: 1) CAEU-P: CONF-PL 63-99 (1999) 2) European Commission (2002a) 3) CAEU-P: CONF-PL 45/02 (2002) 4) Information on the outcomes of the concluded accession negotiations in the area ‘Agriculture’ (2002).

The EU rejected the Polish request for a reference yield at 3,61 tonnes per hectare and finally agreed to 3,0 tonnes per ha. The Polish government also did not succeed in securing the requested ceilings for animal premiums – the negotiated ceilings for special beef premiums and suckler cow premiums were set far below the Polish expectations. Notwithstanding, the Polish negotiators won important concessions from the EU with regard to milk quotas. As already highlighted, the negotiated milk quota, besides direct payments and a special cash-flow facility, was considered the most important success of the Polish 216

6 The EU-Polish accession negotiations on agriculture negotiators achieved during the final talks in Copenhagen. The basic milk quota, distributed between deliveries and direct sale, was fixed at 8,9 million tonnes, that is below the level the Polish government applied for. However, the EU agreed to increase the milk quota for deliveries to 8,5 million tonnes by reallocating 1,5 million tonnes from the direct sales subquota. According to the Polish government, the negotiated increase of the deliveries subquota guarantees individual producer sales and provides adequate supplies for milk processing establishments. Although the Polish negotiators did not manage to convince the EU as to the necessity of review and possible change of reference levels after accession, their arguments about specific conditions in the milk sector were finally accepted. The EU agreed to enlarge the milk quota with a special restructuring reserve of 416 thousand tonnes to balance a possible decrease in onfarm consumption of milk and milk products due to farm restructuring. The offered reserve was proposed to enable conversion of production of milk, consumed on farms, into production for the market. 6.6.1.4 Food safety, veterinary and phytosanitary issues The accession agreement also provided for a number of transitional periods concerning food safety and veterinary standards in the new member states. Considering the most socially sensitive issue of milk production, the Polish government won the transitional period, up to the end of 2006, for structural adjustments on farms producing milk. The EU also accepted transitional periods for 113 milk-processing establishments until 31 December 2006, for 332 meat establishments until 31 December 2007 and for 40 fish-processing establishments until 31 December 2006227. According to the agreement, products of establishments subject to transitional periods could be sold only on the domestic market. At the end of the transitional period all establishments will have to comply with all EU requirements concerning food safety and public health. Additionally, all establishments benefiting from transitional periods have been obliged to prepare detailed schedules for reaching EU standards.

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6 The EU-Polish accession negotiations on agriculture In the final phase of the negotiations, the Polish government presented two new requests for transitional periods in the area of food safety, veterinary standards and animal welfare (CAEU-P: CONF-PL 58/02 ADD 3, 2002). First request concerned selected milk processing establishments that had already undertaken modernisation efforts and, besides processing EU-compliant milk, were still processing non-EU compliant milk. Such a strategy allowed them to keep their position or even survive in the domestic market. The Polish government endeavoured then to get the transitional period for the establishments concerned to process both compliant and non-compliant milk. Finally, the EU agreed to grant a transitional period, up to the end of 2006, for 56 such milk establishments. Similarly, as in the case of milk establishments not meeting EU standards, the establishments keeping the production of compliant and noncompliant milk were obliged to ensure that the milk of worse quality would be sold only on the domestic market. The second request concerned the issue of animal welfare. Poland applied for a transitional period, up to the end of 2011, for poultry farms, in which breeding systems were not compatible with the EU minimal standards. Eventually, the EU agreed to grant Polish poultry farms a transitional period for needed adjustments up to the end of 2009. Overall, the outcomes of the negotiations in the field of food safety and veterinary standards met the expectations of the Polish government. Additionally, Poland as the only candidate country was granted transitional period for establishments dealing with the production of milk of both better and worse quality. The Polish negotiators also managed to secure two specific transitional periods in the phytosanitary sphere228.

227

The EU approval to these negotiating requests was given before the Copenhagen summit. See: CAEU-P: CONF-PL 77/02 (2002). 228 The EU accepted the Polish request for a 10-year transitional period during which only potato varieties resistant to wart disease would be allowed to be grown on Polish territory. The second transitional period concerned plant protection products; Poland won a transitional period until 31 December 2006 for placing on the market plant protection products, which had been in turnover before the accession, provided that active substances, included in these products, are listed in the Annex I to the Council Directive 91/414 or are subject to evaluation. For additional details of the agreement in the phytosanitary sphere see BIM, No 1-2, Special Issue (2002), Report on outcomes of the negotiations for membership of the Republic of Poland in the European Union (2002).

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6 The EU-Polish accession negotiations on agriculture Summing up, the outcomes of the negotiations in the agriculture chapter reflected a quite difficult compromise between the 15 EU member states and the Polish government. As the EU presented its official position as regards financial aspects of agricultural integration only in the last months of the accession negotiations, the most important elements of agricultural agreement were decided during the last negotiating session in Copenhagen in December 2002. The results achieved in the agricultural area have been described by the Polish government as a great success229. Despite a tough bargaining position, the Union finally agreed to phasing-in of direct payments and to a topping-up mechanism. Also the negotiated milk quota was considered a success of the Polish negotiators. Additionally, the Polish government won important provisions on transitional periods for milk, meat and fish-processing establishments as well as the provision on a safeguard clause, which initially had been rejected in Brussels. Though not all Polish negotiation requests concerning agriculture were met, as e.g. a higher reference yield for grains and a higher basic level of direct payments, new measures addressing the specific problems of Polish agriculture, e.g. the programme for semi-subsistence farms as well as the special aid for farms adjusting to the EU standards, allowed the Polish government to consider the negotiated agreement as well-balanced and basically beneficial to farmers. The negotiated conditions of accession imply a fundamental rise in the level of public support for agriculture. As a result of accession, agricultural spending in Poland will increase twofold230. On average, yearly expenditure on agriculture and rural development between 2004-2006 will amount to 2.469 million euro231. Overall, about 7.408 million euro will be transferred to Polish agriculture and rural areas between 2004 and 2006, both from direct payments schemes, market-support measures and rural development programmes232. All things considered, the 229

Rzeczpospolita, No. 291, 14 December 2002. Without spending on the social security system for farmers (KRUS). 231 To compare, in 2002 expenditure from the national budget on agriculture in Poland amounted to 1.271 million euro (Information on the final outcomes of the accession negotiations in the area of ‘Agriculture’, December 2002). 232 According to the estimates of the Polish Ministry of Agriculture, financial support for agriculture for the period 2004-2006, together with Polish co-financing of direct payments to 55%, 60%, 65% is to amount to 9.932 million euro, from which expenditures for market intervention 230

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6 The EU-Polish accession negotiations on agriculture package negotiated in Copenhagen allowed the government to declare that the major negotiating aims in the area of agriculture specified in the Polish official position had been achieved. 6.7

Testing the hypotheses

The explanation of the EU-Polish accession negotiations has been based on the premises of the two-level games theory. The analysis of general conditions of the accession negotiations as well as the analysis of constraints imposed on both negotiating parties have led to the formulation of two hypotheses. The first hypothesis was focused on the bargaining strategies of the Polish negotiators; the second aimed to explain the EU’s policy on the negotiations. Following the conjectures of two-level games theory and the assumption of actors as rational utility maximisers, the formulated hypotheses indicated that Polish negotiators, in order to arrive at a more beneficial agreement would take up actions to strengthen their negotiating position vis-à-vis the EU by resorting to domestic constraints and intentionally playing with them. The second hypothesis stated that the EU negotiators would be willing to expand the acceptability set of the Polish government, through synergistic issue linkages that would change the perception of the individual elements of the negotiated package. The analysis of the course and outcomes of the negotiations in agriculture chapter, presented in the previous sections, provides sufficient empirical basis to test the developed hypotheses. The present section will contrast the reality of the EU-Polish accession negotiations in the agriculture area with the formulated hypotheses and the theoretical accounts of international negotiations as advanced by the two-level game school and liberal intergovernmentalism.

will amount to 840 million euro, for direct payments (basic payments plus reallocated means from the rural development fund) to 3.009 million EUR, and with additional financing from the national budget to 4.581 million euro. Overall the expenditures under the first pillar for the period concerned were estimated at 5.421 million euro. Rural development expenditures are to amount to 2.763 million euro, together with Polish co-financing. See: Information on the final outcomes of the accession negotiations in the area of ‘Agriculture’, December 2002.

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6 The EU-Polish accession negotiations on agriculture 6.7.1

Domestic scene in Poland: agents versus hawks

As mentioned earlier, there were serious conflicts concerning agricultural integration both in the right-wing coalition government formed by the AWS-UW and in the left-wing SLD-UP/PSL government. The first negotiating government was faced with internal conflicts as to the final content of the Polish negotiating position on agricultural issues. Finally, the AWS-UW government, due to pressures from the farm lobby and also due to bargaining tactics, adopted an extremely tough negotiating position, firmly demanding full coverage of Polish agriculture with the CAP instruments. In the real world, negotiators always start with maximum demands in order to get better results at the end. An aspiration point is set far above the reservation point, which reflects the minimum that a party will settle for (Raiffa, 1982: 45-46)233. Therefore, in 1999 the first negotiating team presented quite demanding requests in the agricultural area in order to have needed room for manoeuvres at the later stage of negotiations. The negotiations on agricultural issues were conducted under the banner of ‘full integration of Polish agriculture to the CAP mechanisms’, that is including full direct payments for Polish farmers. Taking into account the sensitivity of agricultural issues in Poland, such a strategy was not surprising. Following developments in the negotiation process, the next, SLD-UP/PSL government changed the bargaining strategy and adopted a more compromising negotiating position. In the final phase of the negotiations, Poland conducted the talks on agricultural issues under the banner of ‘ensuring equal competition conditions for Polish farmers’. However, the junior coalition partner – the rural PSL – continued to press the Polish negotiating team to fight for the full inclusion of Polish agriculture in the CAP. The government became clearly divided into two groups representing different approaches to the negotiations in the area of agriculture. Furthermore, the government was faced with strong anti-EU opposition in the Parliament, which firmly rejected Poland’s membership in the EU. Though the 233

However, it worth remembering that even before the start of accession negotiations, in the National Strategy for Integration, adopted at the beginning of 1997, the Polish government did not mention full direct payments for Polish farmers, stressing only the need for ensuring equal competition conditions.

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6 The EU-Polish accession negotiations on agriculture Polish government officially maintained that ensuring equal competition conditions for farmers would require full inclusion of Polish agriculture in the CAP and in the system of direct payments, the negotiators centred around the Ministry for Foreign Affairs and the Committee for European Integration were basically more conciliatory. The leader of the rural PSL and the minister of agriculture, Jarosław Kalinowski, headed the second group, fiercely opposing the transitional period for reaching full direct payments. The Agriculture Ministry was the greatest critic of the process of the accession negotiations in the agricultural sphere. Putting it in two-level games terms, we have observed an internal struggle between the hawks, who showed very limited willingness to compromise and continued with unbridled demands indicating that the Polish rural community would reject the accession treaty if the terms of accession were not favourable enough, and the agents, whose reference point in the negotiations was set much closer to the EU reference point. The conflicts between the coalition partners – SLD/UP and PSL – started soon after the formation of the government. The first serious tensions arose when the government adopted a more moderate negotiating position as regards buying agricultural land by foreigners. The domestic tensions concerning agriculture sharpened after the Commission announced the proposals concerning financial aspects of integration of the CEECs to the CAP. In February 2002, the agriculture minister threatened to leave the coalition with the SLD in case Polish farmers received incomplete direct payments. In July 2002, the competence conflict between the agriculture minister and negotiators connected to the SLD arose. Kalinowski reproached the negotiators for moving him away from agriculture negotiations. Also the PSL politicians evaluated some practices within the Polish negotiating team as an attempt to change the rules for decision-making processes regarding the adoption of the negotiating positions. They argued that the government officials had wished to deprive Kalinowski of influence on agriculture negotiations since he had been considered as too tenacious234. The negotiators connected to the SLD attempted to push the solution according to 234

Gazeta Wyborcza, No. 154, 4 July 2002.

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6 The EU-Polish accession negotiations on agriculture which the final negotiating positions were to be prepared by the negotiating team under the chief negotiator’s guidance and later approved by the minister for European affairs. However, after Kalinowski’s protests, the government confirmed that the agriculture minister would be participating in preparing the Polish negotiating position on agricultural issues as well as in approving the final version of the position to be sent to Brussels. The tough bargaining position of Kalinowski was determined not only by the fact that he, as the agriculture minister, took on the constitutional responsibility for agricultural issues, but also by the fierce inter-party competition and a threat of losing the rural electorate in favour of the more radical SelfDefence. Moreover, Kalinowski was threatened both as agriculture minister and as the leader of the PSL. His party colleagues were strongly dissatisfied with the course of the coalition with the SLD as well as with the course of the accession negotiations on agriculture. In the official position from the end of November 2002, the PSL rejected the negotiated conditions for Polish agriculture’s accession to the EU thus far235. The PSL hard-liners argued for leaving the coalition; for Kalinowski such a scenario would imply not only dismissal from the position of agriculture minister but also from the position of party leader. In the situation of a growing anti-EU atmosphere in the party and growing public support for SelfDefence, a very tough position on agricultural issues became the basic element of Kalinowski’s strategy for ensuring the maintenance of the position of agriculture minister and the position of party leader.

6.7.2

Final bargaining: double-edged strategies

The strong representation of agricultural interests in domestic politics, determined by the size of the agriculture sector in the economy and specific problems of agricultural transition, on the one hand, and by the evolution in the Polish party system, on the other, led to great sensitivity on agricultural issues in the accession negotiations with the EU. However, the internal tensions between the coalition partners as regards agricultural issues and strong anti-EU opposition proved to be

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6 The EU-Polish accession negotiations on agriculture an important bargaining advantage of the Polish negotiating team. The analysis of the negotiations process and the Polish negotiators’ bargaining behaviours gives support to the claim that the bargaining strategy of the Polish government was basically built upon domestic constraints. Due to collective action problems and the specific organization of the accession negotiations, strategies based on cooperation between the candidate countries were found to be far less feasible. Despite the fact that the CEECs made up quite a large and uniform block in terms of economic interests, they rather competed than cooperated in the accession negotiations. Poland, as the biggest applicant country, was particularly threatened by free riding from other candidate countries and at the same time had limited possibilities to reap benefits from their bargaining successes. Fundamentally, actions aimed at strengthening the bargaining position through coordination of the negotiating efforts of the ten candidate countries seemed then more costly and less efficient. Although the Visegrad countries built up a formal alliance in the last months of the accession negotiations, it was rather difficult to avoid a ‘prisoner dilemma’ type situation. During the final accession talks, the EU negotiators were to discuss all outstanding problems with all candidate countries individually in the same place and in relatively short time intervals. Thus access to information about how the negotiations with other candidates proceeded was highly restricted. Additionally, some candidate countries – the Baltic states and Slovenia – had been prone to accept the EU financial offer even before the conclusion of the Copenhagen summit. Therefore, the candidate countries were primarily focused on securing their own national interests, not willing to take risks for the other candidates. The Polish Prime Minister, asked about the solidarity of the candidate countries, confirmed that subsequent developments in the negotiations made cooperation between the CEECs extremely difficult: It seems that our colleagues hold a grudge against us because our pressure concerned only Poland, not all countries, the whole group. Well, it was unreasonable to expect from me that I would be negotiating on behalf of the ten candidate countries. (...) everyone was looking at Poland. They were waiting, assuming that if Poland wins something, this will apply to all

235

Position of the General Council of the Polish Peasant Party, November 2002.

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6 The EU-Polish accession negotiations on agriculture candidate countries. It was a serious problem for me during the talks with Rasmussen236.

Indeed, the fact that Poland was conducting negotiations for membership in the EU together with such a great number of other candidate countries has been considered as one of the major liabilities of the Polish negotiating team. The competition of the other candidate countries was indicated as an important hurdle, weakening Poland’s bargaining position against the EU237. In contrast to actions at the international level undertaken to develop common bargaining strategies of the CEECs, bargaining strategies based on domestic constraints seemed to be more efficient and less costly. Therefore, the Polish negotiators basically focused on bargaining tactics which made use of domestic politics, namely strong national arguments and domestic obstacles. Additionally, the great importance of Poland’s integration in the EU in Polish foreign policy, the specific problems of transforming the economy and changing the political system made the incumbent government especially prone to employ double-edged strategies. The Polish Prime Minister, Leszek Miller, faced with declining public support for the government, was determined to extract the maximum benefits possible from the EU in order to prove to domestic constituencies that the government was strong and efficient. Therefore, the government was playing at Level I with the Level II cards to attain better negotiation results and at the Level II with the Level I cards to achieve concrete political benefits in the domestic arena. 6.7.2.1 Polish negotiators’ focus on domestic constraints The agriculture package and the package related to budgetary issues were the most important yardsticks for negotiating success. As highlighted, the Polish negotiators made use of the existing domestic constraints to arrive at a more beneficial agreement with the EU. In agriculture negotiations, the most important constraint imposed on the negotiators stemmed from the opposition of the farm lobby, anti-EU parties and the co-ruling PSL. Particularly the described division 236

Quotation from the interview for Rzeczpospolita (No. 292, 16 December 2002). Information included in the questionnaire filled in by the official engaged in the accession negotiations, Office for European Integration, August 2003. 237

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6 The EU-Polish accession negotiations on agriculture between agents and hawks appeared as an important factor strengthening the bargaining position of the Polish negotiating team. From the two-level games perspective this internal division had two different effects. On the one hand, it constituted a bargaining advantage of the Polish government in the accession negotiations, since the threats of involuntary defection delivered by agents were more credible in the eyes of the EU negotiators. On the other hand, internal divisions helped Poland to arrive at the agreement with the EU in due time. This is consistent with the proposition of the negotiation theory claiming that diffuse positions internally facilitate the achievement of the external agreement (Putnam, 1988). The presence of the rural party in the ruling coalition relieved some of the tensions concerning agricultural integration at the level of government. Thanks to the division in the Polish negotiating team, the EU negotiators were not doomed to battle with hard-liners focused exclusively on agricultural interests. The tasks of moderating the extreme position of the agricultural lobby in Poland were partly realized by the negotiators and government officials coming from the prointegration group. Though the negotiators used the existing domestic constraints and pressures from the farm lobby during the negotiations, they did not aim to further constrict the Polish internal win-set as regards agricultural issues. To make its position as agents more credible, the pro-integration group tried to minimize the demands of the strong agricultural lobby. Therefore, to arrive at a mutually acceptable agreement there was a need to ‘cut slack’ domestically. This required a great deal of logrolling – satisfying agricultural interests by granting specific domestic privileges for agricultural interest groups and rural parties. The government decided to set aside major agricultural reforms, i.a. those concerning changes in the farmers’ social security system and in the tax system for farmers, for the period after accession to the EU. Fundamentally, all decisions that could have led to the intensification of tensions in rural area were adjourned. Nevertheless, the government continued to resort to existing domestic constraints and in the end-phase of the accession negotiations decided to increase their importance.

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6 The EU-Polish accession negotiations on agriculture 6.7.2.2 Intentional imposition of additional domestic constraints There are clear examples of playing with the size of domestic constraints. At the beginning of December 2001, the minister for foreign affairs, Włodzimierz Cimoszewicz, sent to the EU negotiators a new and moderated negotiating position in the chapter on the free movement of capital on buying real estate by foreigners. The government presented the new position on this domestically very touchy issue without informing political parties in opposition. The minister for foreign affairs described the situation as an unintended ‘informational slip-up’. However, in consequence, domestic opposition to the EU and to the government’s policy on European integration increased, further limiting the government’s leeway in the negotiations with the EU. The government also resorted to ratification constraints. The ratification was to be organized in the form of a public referendum, both to give Poland’s integration process to the EU a more democratic character and to avoid political struggles in the parliament238. However, ratification by way of public referendum was uncertain, mainly because of the requirement concerning turnout in a referendum and far better mobilisation of anti-EU groups in society. The possible failure of a ratification referendum constituted then an important threat for the negotiators. Additionally, unexpectedly at the beginning of April 2002, the Polish Prime Minister announced that the government would resign if the result of the public referendum on accession to the EU was negative239. The declaration about government resignation appeared at a very specific moment of the negotiations with the EU. The EU member states were conducting internal negotiations concerning the financial aspects of agricultural integration, including the contentious issue of direct payments. In the domestic arena, the Prime Minister’s declaration gave anti-EU parties additional incentive to reject membership in the EU and organize an active anti-EU campaign. From the two-level games perspective, such action can be explained as intentional imposition of additional 238

Due to the strong representation of eurosceptic political parties in the Sejm elected in 2001 as well as due to the ambiguous position of some political parties (e.g. of the junior coalition partner PSL and also of the PiS) a positive vote on ratification in the parliament seemed to be threatened. 239 Rzeczpospolita, No. 82, 8 April 2002.

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6 The EU-Polish accession negotiations on agriculture domestic constraint on a government engaged in international negotiations. Thus the threat of government resignation in case of a lost referendum was primarily addressed outside, to the EU negotiators. As highlighted in the previous sections, since the 2001 parliamentary elections, the popularity of radical parties, and especially of Self-Defence, had been growing. Early parliamentary elections could have strengthened the political position of radical and anti-EU parties in Poland. Therefore such a declaration was primarily aimed at strengthening the position of the Polish negotiating team against the EU negotiators. The developments in the subsequent months confirmed that Miller’s declaration was part of the bargaining strategy being primarily channelled toward the EU negotiators. In mid-December 2002, after the Copenhagen negotiation had been concluded, the Prime Minister withdrew his April declaration. He explained that he did not want to turn voting on EU membership into voting on the future of the government, adding that there were proponents of integration to the EU who did not support the incumbent government and did not want to link the historic voting on EU membership with political voting on support for the government240. The argument about possible collapse of the government was presented by the Polish Prime Minister once again during the final talks in Copenhagen. As highlighted in the section analysing the final accession talks in Copenhagen, the Prime Minister informed his Danish counterpart that the PSL, the junior coalition partner had withdrawn from the government. Basically, the hypothesis claiming that the Polish negotiators would be playing at Level I with the constraints of a domestic nature (Level II) has been proved. Not only did the Polish government resort to the argument of tied hands, the difficult socio-economic situation in Polish agriculture and opposition from rural and anti-EU parties, but it also made use of political instruments aimed at increasing the significance of domestic constraints. Nonetheless, the analysed empirical data shows that the formulated hypothesis does not fully reflect the actual dynamics of the accession negotiations on the agriculture chapter. The dynamics of the negotiation process and the Polish negotiators’ strategies vis-à-vis 240

Polska Agencja Prasowa, 15 December 2002.

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6 The EU-Polish accession negotiations on agriculture the EU were largely determined by the existing division in the Polish government into supporters of European integration willing to secure beneficial agreement for the whole economy and the group concentrated on agricultural issues and perceiving the integration mainly through the prism of sectoral interests. Fundamentally, the conflicts between ‘agents’ and ‘hawks’ essentially strengthened the bargaining position of the Polish negotiating team and made the arguments of the negotiators of the dominant pro-integration group more convincing. ‘Agents’ used both the strategies of tied hands and cutting slack. The specificity of the enlargement talks and the great importance of European integration in Polish foreign policy channelled the negotiating process towards cooperative bargaining. Additionally, as already highlighted, cooperative behaviours made the threat of involuntary defection from the negotiated agreement

more

credible.

The

Polish

Ministry

for

Foreign

Affairs

(MSZ)/Committee for European Integration (UKIE) and the European Commission played an important role in the ‘chief of government collusion’ that helped bring about the final agreement. The group of hawks coming from the PSL and the Ministry of Agriculture (MRiRW) repeatedly reproached the Polish chief negotiators that they devoted more time to persuade the Polish government’s officials towards the EU arguments than the EU officials towards Polish rights. Winning domestic support for the negotiated agreement was driven not only by concerns about the ratification of the accession treaty and Poland’s position in the international arena, but also by underlying political motives of a domestic nature. Poor bargaining results would imply for the government a weaker political position on the domestic scene and worse chances to win the next elections. The existence of the electoral constraint made the incumbent government determined to portray outcomes of the negotiations in the most favourable light. All things considered, the bargaining behaviours of the Polish negotiators during the final accession talks on agriculture can be seen as a rotating ‘tied hands – cutting slack’ game. The following diagram illustrates the actual dynamics of the EU-Polish accession negotiations.

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6 The EU-Polish accession negotiations on agriculture Figure 6.2 Virtual dynamics of the negotiation process on agriculture between Poland and the EU Level I European Union Poland Negotiating team

15 Member States European Commission

tying hands

electoral constraint; differing preferences regarding budgetary issues and future of the CAP

MSZ(UKIE) chief of government concord

cutting slack

reverberation targeting

Level II

Domestic developments in the EU-15 -

-

cutting slack

MRiRW electoral constraint fierce political competition between rural parties, strong antiEU opposition

tying hands

Domestic developments in Poland - problems of agriculture and its transformation - farm protests - rural political parties in opposition and in coalition government

internal compromise on the CAP (1999) and financial framework 2000-2006 reforms of the EU institutions EU internal negotiations on the CAP reforms 2002-2003

MSZ –Ministry of Foreign Affairs; UKIE - Office of the Committee for European Integration MRiRW – Ministry of Agriculture and Rural Development Source: Author’s own presentation.

6.7.3

The EU negotiators’ actions

The diagram above also helps to answer the question about the validity of the second research hypothesis. Results of the study indicate that the EU negotiators, having little room for manoeuvres in the EU domestic arena, indeed focused on expanding the size of the Polish bargaining set as regards agriculture. In order to enlarge the Polish win-set, the EU negotiators were searching for new solutions and were trying to change the perception of domestically acceptable outcomes in Poland. The empirical evidence has also shown that the EU negotiators

230

6 The EU-Polish accession negotiations on agriculture representing the European Commission, despite limited possibilities of playing at the EU Level II, used its role of the agenda setter and the major mediator in the accession negotiations to somewhat increase the acceptability set of the EU-15 member states as regards the CEEC agricultural sectors’ integration in the CAP. The bargaining behaviours of the EU negotiators were determined by the EU’s institutional structure. The European Commission, the EU supra-national body, had a vital interest in enlarging the organization. For that reason the Commission’s actions in the negotiations have been two-way – the first and fundamental actions were channelled towards expanding the Polish bargaining set, the other set of actions was to increase the EU member states’ level of understanding of certain elements of the Polish negotiating position. Strong national arguments, in particular the size of the country and social consequences of reforms adjusting the Polish economy to EU conditions, were regarded by the EU negotiators as the major points requiring careful consideration from the EU241. The European Commission was acting like an agent searching for solutions that would reconcile the opposing positions of both negotiating parties. The Commission’s officials dealing with enlargement had then a double task during the accession negotiations. On the one hand, they had to persuade the candidate countries that the proposal of a phasing-in mechanism for direct payments was the best possible solution for accommodating the new member states in the CAP. Additionally, they had to present the EU position as a quite generous offer, particularly when compared with the provisions of the Berlin agreement on the financial perspective of 2000-2006, which did not provide for direct payments. On the other hand, the Commission’s officials tried to get support from the old EU member states for their compromise offer, assuming granting direct payments to the newcomers, arguing that direct payments at a certain level were needed for income stabilisation in new member states and for cushioning the effects of restructuring on commercial farms 242. The Commission was also responsible for preparing the proposal for the CAP reform. Taking into 241

On the basis of information included in the questionnaire filled out by the official of the Directorate General for Enlargement, European Commission, July 2003.

231

6 The EU-Polish accession negotiations on agriculture account differing preferences of the 15 EU member states as to the budgetary issues and future of the CAP, the internal compromise on both the package concerning accession of the new member states and the package of the CAP reforms was considered quite difficult. Overall, the EU institutional structure led to the formation of bargaining behaviours that were quite similar to those observed in Poland. The EU member states, acting under electoral constraints, adopted tough bargaining position (tied hands strategy); the European Commission, though using the existing EU domestic constraints for bargaining purposes, was simultaneously looking for solutions that would expand the EU bargaining set (cutting slack). The basic difference between the bargaining behaviours of the EU and the Polish government, confirming the validity of the formulated hypotheses, is that the EU negotiators also focused on Polish domestic constraints, while the Polish negotiators fundamentally limited their bargaining strategy to actions aimed at highlighting underlying domestic weaknesses of the government. The EU stronger bargaining position, the power of setting the agenda and sequencing the negotiated issues, enabled the EU negotiators to undertake actions aimed at changing the size of the Polish internal win-set. To support the above proposition the following section presents in more detail the bargaining strategy and behaviours of the EU negotiators.

6.7.3.1 Enlarging the Polish win-set The European Commission was faced with the very restricted win-set of Poland as regards agriculture, even during the negotiations on agricultural trade liberalisation. Though the accession negotiations primarily involved the national governments – 15 EU member states and the Polish government – the European Commission, since the start of the talks on agriculture in June 2000 till the endphase of the negotiations and the publication of the proposal for the EU Common Position on agriculture and financial issues in January 2002, played the role of the key EU negotiator. To ease constraints on the Polish domestic scene and increase

242

Enlargement Weekly, 25 February 2002.

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6 The EU-Polish accession negotiations on agriculture the Polish win-set, the Commission’s negotiators undertook specific action that, in Putnam’s terminology, reflect such strategies as reverberation and targeting. With reverberation, the Commission aimed to reach Polish constituencies and persuade them of the benefits of accession to the EU on the conditions proposed by the EU. The EU negotiators were particularly concerned to make the negotiated agreement acceptable for the Polish farmers, the biggest and the most eurosceptic socio-economic group in Poland. To shift public opinion towards the EU, the Commission’s officials organized a series of conferences and meetings involving Polish farm groups and were appealing to domestic constituencies through domestic actors. Yet before the final phase of the accession talks, the representatives of the Commission channelled its appeal for support of European integration towards important Polish institutions. In June 2000, the agriculture Commissioner, Franz Fischler, called on the Polish clergy to join to the campaign informing Polish society, and in particular Polish farmers, about the benefits and challenges resulting from future membership in the EU. It is important that the population should be well-informed about the accession process and the opportunities that EU programmes offer, during the pre-accession period, and also after membership. It is equally important that channels exist for rural communities to make their views known to the Polish Government and also to the Community institutions in Brussels. I believe that the church, with its well-developed nation-wide network and close involvement in every aspect of community life, can play an important role in ensuring that this two-way communication occurs and is effective243.

Taking into account the great role of the Catholic Church and especially traditional attachment of rural area inhabitants to the church institution, such appeals were important elements in the EU strategy for increasing the chances for successful conclusion of the negotiations with Poland. The EU officials could count on support from Polish Church dignitaries. At that time, the Catholic Church in Poland issued a statement supporting Poland’s integration in the EU and the Polish Major Priest for Farmers, bishop Roman Andrzejewski, confirmed the Church’s engagement in the pro-EU campaign in rural areas:

243

Speech of Franz Fischler ‘Agricultural changes in Europe and the prospect of Poland's accession to the EU’, Conference on “Polish rural areas facing the challenges of European integration”, Warsaw, June 2000.

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6 The EU-Polish accession negotiations on agriculture

The Church looks kindly on the Union - the Church considers the Union as a social good and sees in the EU membership many benefits for the Polish nation. Our farmers fell prey to spreading anti-EU propaganda. And the ground is easy, since farmers have been bearing the costs of economic reforms for 11 years, without reaping benefits. All governments, including rural parties, were doing everything to dishearten farmers for the Union. That’s why the role of the Church is so important, because farmers believe that the Church will not harm them; they will be counting on the Church, whether it supports the Union. The Church may diminish the fear of the Union and the challenges it brings244.

Many other visits of the Commission’s officials in Poland and meetings with the representatives of different interest groups and domestic institutions both in Brussels and in Poland reflected the attempts at suasive reverberation245. The EU was persuading the Polish government and other domestic institutions to undertake an active information campaign in rural areas. This strategy proved to be only partly successful since it did not prompt the Polish rural community to clearly support the European integration. However, it brought about greater involvement of relevant domestic institutions in persuading the Polish farmers of the value of accession to the EU. Another method used by the EU negotiators for enlarging the acceptability set at Level II was targeting, i.e. issue linkages creating new policy options. Though the targeting linkage does not change the preferences of domestic constituencies, it allows changing the perceptions of the negotiated agreement. The negotiations for membership in the EU, in which many different economic and political issues are decided, make synergistic issue linkages especially feasible. According to the official negotiating line of the EU, the negotiations were conducted in each individual chapter and decisions taken in one area could not prejudge the position taken in other areas. However, the very negotiation chapter ‘Agriculture’ involved a great number of issues, from traditional market support systems, supply controls, rural development to food safety. The extremely 244

The statement of bishop Roman Andrzejewski at the conference “Polish rural areas facing the challenges of European integration” in Warsaw in June 2000 (Boss-Rolnictwo, No. 24, 16 June 2000, p.11; author’s own translation). 245 E.g. Fischler’s speech at the seminar in Brussels organized for bishops from the CEECs on 4 February 2002, Fischler’s meeting with the Polish parliamentarians in September 2002, many diplomatic visits of the Commissioner for Enlargement, Guenter Verheugen.

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6 The EU-Polish accession negotiations on agriculture complex character of the agriculture negotiations gave the decision-makers a great leeway as regards building different policy packages. Aiming at the expansion of the acceptability set of the candidate countries, the officials of the European Commission included in their offer many important solutions developed to address the problems of the CEEC agricultural sectors. Such elements as increased funds for rural development, a compromise phasing-in mechanism for direct payments with the topping-up option, a simpler system for the distribution of direct payments and the whole range of transitional measures and exemptions from many EU rules such as set-aside requirements, requirements concerning animal welfare and food safety have been particularly highlighted246. Also the package for the dominant semi-subsistence sector in Polish agriculture, in the form of the special small-farm scheme, apart from addressing the underlying problems of Polish agriculture, was needed to win support of the most eurosceptic part of the rural community in Poland. Overall, consent to reallocating means between the funds of the CAP’s first and second pillar, special programmes for transforming agriculture sectors of the CEECs and less restrictive application of the EU rules changed the Polish government’s picture of the negotiated agreement. In the end-phase of the negotiations, after the EU adopted the Commission’s draft proposals and agreed to grant specific additional measures, the Polish government resigned from its major negotiating demand – full direct payments – and adopted a more conciliatory position. Also the proposed shift between the milk subquotas softened the Polish government’s position. However, the most effective means for influencing the perceptions of the negotiated agreement and enlarging the acceptability set of the other party was the division of roles within the EU negotiating team. The EU institutional structure gave the EU negotiators great power to keep the other party in uncertainty as to the actual negotiating position of the Union. The fact that proposals for negotiations were prepared by a EU supranational institution (European Commission) and in the final phase of the negotiations by a Member State, holding the EU presidency, gave the remaining member states the opportunity to 246

Interview with Franz Fischler (Rzeczpospolita, No. 57, 8 March 2002).

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6 The EU-Polish accession negotiations on agriculture distance themselves from the proposals. The EU member states discounted the option of granting new member states direct payments till the last months of the enlargement negotiations and deferred the decision on the Commission proposals. In May 2002, the director of the Commission’s Enlargement Directorate General, Eneko Landaburu, describing the behind-the-scenes of EU internal negotiation concerning the accession talks, indicated that the incumbents considered the Commission’s negotiating behaviours as too compliant: We were strongly criticised by the EU 15 member states for presenting straight away to candidate countries solutions that were of a final nature, resigning from presenting solutions from lower positions, that would be more appropriate tactically. However, the very short time for concluding the negotiations does not allow us to do this. Besides, this negotiation is specific, conducted not with outsiders, but with members of the future, common family. Thus, it is necessary to put everything on the table 247.

Also the Agriculture Commissioner was pointing out that some member states viewed the Commission’s proposals on accommodating the agriculture sectors of the CEECs to the CAP as too generous248. Basically, the proposals submitted by the responsible EU institutions and the EU member state were depicted by the remainder as threatening their vital interests and consequently as hardly acceptable. The offer that was finally presented to the candidate countries largely corresponded with the original proposal prepared by the responsible EU institutions; however, its adoption was depicted as a great concession of the EU member states and not a rejectable offer. Thus with this, so to say, ‘grudging compromise position’ the EU had the last word in the accession negotiations. Consequently, the EU-15 member states, as the actors inviting the candidate countries to membership, had great possibilities to make offers and counteroffers, changing the candidate countries’ perceptions as to the initial proposals. New offers, similar or less favourable than the initial offer, make the offer’s addressee basically more prone to consider the first offer as a gain (cf. Kristensen/Gärling, 1997). The Polish negotiator’s evaluation of offers and counteroffers was also largely influenced by the high costs of non-agreement for Poland. With increases

247

Quotation of Landaburu’s statement in Rzeczpospolita (No. 104, 6 May 2002; author’s own translation). 248 Franz Fischler’s statement in the Polish Parliament,12 September 2002.

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6 The EU-Polish accession negotiations on agriculture in perceived benefits of the EU offer, the Polish win-set was basically expanding allowing the negotiators to conclude the negotiations in due time.

6.8

Summary

Enlargement of the EU to the east has been treated as a historical imperative. Despite significant differences in specific policy areas between the EU and candidate countries, both the EU and the CEECs had a common and top priority – to finally end with the political legacy of the Cold War era and to unite Europe. In the face of the overarching political imperative of eastern enlargement, the negotiators were basically oriented towards cooperative bargaining. The task of Europe’s unification evoked greater organizational mobilisation during the negotiations. A great number of problems connected with the accession of the ten post-communist countries to the EU made both parties more mobilized and disciplined. The European Commission developed a detailed enlargement strategy and embarked on preparing regular reports on individual countries’ progress to accession. Such structured enlargement negotiations, with fixed deadlines and regular checks on the candidates, favoured a relatively smooth course of accession talks. The talks on agriculture constituted one of the most problematic negotiation areas. Pressured by farm interest groups and by the Parliament, the Polish government took a very tough bargaining position during the negotiations on agricultural issues. The specific conditions of the EU enlargement negotiations and a weaker negotiating position made the Polish government especially inclined to develop a bargaining strategy based on the domestic constraints. Such structural characteristics of the Polish polity as a large rural population, active farm organizations presenting anti-EU or eurosceptic positions and fierce competition between political parties adjusting to socio-economic cleavages and fighting for position in the developing party system, contributed to the effectiveness of the double-edged strategies. Interests of farmers de facto overshadowed other areas of

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6 The EU-Polish accession negotiations on agriculture negotiations. No other socio-economic group was so much present in Polish discussions concerning accession to the EU. As the accession negotiations were negotiations ‘among friends’, the strategy of ‘tied hands’ employed by the Polish negotiators proved to bring expected results. The Polish government declared full victory after the conclusion of negotiations in December 2002. The small win-set of Poland as regards agriculture made involuntary defection from the negotiated agreement, that is defection beyond the control of the negotiators, more probable. At the same time, the credibility of arguments about tied hands was increased by the existing division in the coalition government – hard-liners vs. more moderate negotiators. Conflicts between the coalition partners and the division in the Polish government had a paradoxically positive impact on the agriculture negotiations with the EU. Both in the EU and in the Polish negotiating team there were groups vitally interested in easing domestic constraints related to agriculture and future ratification of the accession treaty. Both these groups – in case of the EU primarily the European Commission and in case of Poland negotiators coming from the Office of the Committee for European Integration and the Ministry of Foreign Affairs, played the role of agents. Overall, the bargaining dynamics in agricultural negotiations between Poland and the EU were determined by the rotating tied hands – cutting slack game.

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7 Summary and concluding remarks Poland entered the period of systemic transformation to a market economy with quite obsolete agricultural structures. Since the end of the Second World War, agriculture in Poland had not been subject to major modernisation and restructuring. The very slow pace of structural changes in the sector in the 1990s inclined researchers to look for the factors that have been holding back needed reforms. The research interest in exploring the reasons for stalled restructuring in Polish agriculture has increased particularly in the years of preparations for the EU accession. Economic constraints and specific social characteristic of Polish farmers resulting in very poor endowment of rural areas with social capital have been most often indicated as the major reasons for weak structural changes in the sector and the weak state of preparations for integration with the EU agricultural economy. Specifically, the survival of peasant farming under communism and its continuation in the new systemic conditions has created the picture of Polish agriculture as the most recalcitrant sector of the economy. The present study has attempted to contribute to the strand of research examining the interplay of economic, social and political factors that influenced the transformation processes in Polish agriculture and its adaptations to the requirements of the EU. The study not only aimed at answering research questions concerning domestic conditions of agricultural reforms in Poland and international interactions in the EU-Polish negotiations on agriculture, but also at showing how the developments on these two levels have affected each other. Such a holistic approach has produced interesting findings both as regards the transformation dynamics in the Polish agriculture sector, its connection with the preparations for the EU accession and the actual EU-Polish negotiations on agriculture. The research shed light on some new and heretofore unexamined, sources of stalled restructuring in Polish agriculture. At the same time, it explored the sources of the sensitiveness of agriculture issues in the EU-Polish accession negotiations, identified factors that have shaped bargaining sets of the negotiating parties and explained the negotiations’ dynamics and their outcomes. The major findings of the study, first concerning developments at the domestic level and

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second concerning the actual negotiations, are summarised in the following. To increase the validity of the findings, an attempt to see the gathered empirical evidence through other theoretical lens will be made. In the closing paragraphs the limitations of the dissertation, the practical implications as well as suggestions for future research are considered. Agriculture in the vise of transformation and integration processes Why have reforms in the agriculture sector in Poland been proceeding far more slowly than in other economic sectors and what was the role of the expected integration to the EU for the pace of transformation processes in the Polish agriculture sector? The empirical analysis carried out in the present study allows us at least partly to answer these questions. Generally, the transformation process in the Polish agricultural sector has proceeded very slowly not only because of the underlying structural inadequacies and economic backwardness inherited from the previous system, but also because of the specific constellation of political, economic and social factors that emerged in Poland as a result of systemic change. Additionally, the state de facto withdrew from the process of the agricultural sector’s transformation in Poland. The analysis of the course and dynamics of agricultural transformation in Poland and preparations for integration with the EU makes the thesis about intentional eschewal of agricultural reforms by subsequent governments quite justified. The sources of this intentional relinquishment were twofold. In the first stage (1989-1991) the post-communist governments resigned from playing an active role in the process of farm reforms mainly due to ideological reasons. Liberal agricultural policy was considered the best response of the state to the problems of Polish agriculture and rural areas. In the following stages of the Polish transformation process, the reasons for state resignation from undertaking agricultural reforms (concerning i.a. farm structure, reform of the farmers’ social security fund, the rules for intervention policy in agriculture) were mainly of a political nature. The chances of introducing deeper reforms in agriculture seemed to be greater right at the outset of the transformation process, when acceptance of a market economy was quite widespread among Polish 240

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farmers. However, along with progress in the transformation process and growing dissatisfaction of the farmers’ community with its effects, the political costs of farm reforms rose dramatically. Because of social benefits resulting from maintaining farms, farmers were generally not willing to quit farming. In the specific conditions of systemic transformation, peasant agriculture has played an important role as a social buffer, cushioning negative economic effects of transition for the rural population. For the political decision-makers, these natural social functions of a peasant sector in Polish agriculture have appeared to be a convenient and self-sustaining solution to the socio-economic problems which had been arising along with developments in the transformation process. Furthermore, the existing situation in agriculture was and still seems beneficial for some political parties. The existing farm structures and particularly large agricultural employment were beneficial for rural parties in Poland. Their political survival largely depended on the number of rural votes. Indeed, there was no countervailing power to balance the strength of the agricultural lobby in Poland. As farm groups and rural parties proved pivotal in the processes of coalition government formation after the fall of the communist system in Poland, their preferences were reflected in a relatively slower pace of structural changes in agriculture. Guided by increasing demands of the farm lobby, the policy on major agricultural markets, pursued by the state, was highly unstable. Additionally, developments in the Polish party system made rural issues an important area of political competition. The position of the Polish Peasant Party became threatened by the growing popularity of the populist Self-Defence, a political party that emerged from the radical peasant movement fighting with market reforms. The fierce competition between rural parties concerned both the issues of domestic agricultural policy and the issues of Polish agriculture integration to the CAP. Faced with the threat of losing rural votes in favour of Self-Defence, the Polish Peasant Party, the junior coalition partner in the government formed after the 2001 general elections, adopted a more radical socio-economic agenda, fighting for more protectionist policies and opposing major reforms in the sector.

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Interestingly, the preparations for EU integration did not result in the acceleration of transformation processes in Polish agriculture. Paradoxically, the expected integration to the EU became an essential impediment to structural reforms in the sector. The subsequent governments had no courage to undertake deep reforms in agriculture in the pre-accession period and before the accession referendum, fearing that farmers would then reject membership in the EU. Fundamentally, there were several factors related to the planned integration to the EU that can be thought of as having an adverse impact on the pace of transformation processes in Polish agriculture. Most importantly, the negative experiences of trade integration in the agricultural sphere in the association period made the Polish farmers negatively disposed towards the EU. Visible asymmetry in trade relations, high EU protection, and particularly export subsidisation of EU agricultural products were considered as essentially encumbering restructuring and modernisation in Polish agriculture. The second source of difficulties was related to expected changes in the policy regime for agriculture after accession. The planned introduction of complex mechanisms and instruments of the EU CAP, especially introduction of supply management instruments in Polish agriculture, highly influenced policies in the pre-accession period. The fear of establishing production quotas and limits in the accession negotiations with the EU at a very low level made the decision-makers reluctant to implement new regulations that would order the situation on major agricultural markets. In fact, in the situation of decreased agricultural production, subsequent governments pursued the policy that was to help agricultural producers to maintain and, in the most sensitive sectors, to increase the level of production. This partly explains why Polish intervention policy on agricultural markets was changing from year to year and why ad hoc interventions were a dominant feature of Polish agricultural policy in the 1990s. Furthermore, the limited activity of the state in the process of agricultural transformation in the 1990s can be explained by the expected transfer of decision centres from domestic institutions to EU institutions. Fundamentally, possible reforms ahead of the integration to the EU seemed to be politically too risky for the successive Polish governments. The expected integration to the 242

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European economic structures was treated as the best possible solution to the problems of Polish agriculture’s restructuring and modernisation. After the accession to the EU, the task of conducting agricultural policy (market support and other traditional support schemes for agricultural producers) falls fully on European institutions. The EU Common Agricultural Policy replaces national agricultural policies and discharges national governments from the task of decision-making in this area. Also, in the area of rural development and structural operations, in which national governments are obliged to play a more active role, the guidelines are laid down by EU regulations. Therefore, farm reforms seemed to be less risky in political terms after the accession to the EU, when the costs of needed changes would at least partly be shared with the EU. With the preparations for integration with the EU primarily centred around legal, administration and institutional adjustments needed for efficient CAP functioning after accession, the reforms addressing the core structural problems of Polish agriculture were left behind. Not only political factors but also very weak administration structures of the Polish state were blocking the transformation dynamics in Polish agriculture. Due to administration difficulties, the preparation for CAP implementation proceeded very slowly. Also the major pre-accession programme, SAPARD, aiming at structural adjustments in the Polish agri-food sector, was launched with a few years’ delay and its first effects were far from the initial expectations. To conclude, in the pre-accession period in Poland there were no favourable political and socio-economic conditions to undertake deep structural reforms in agriculture and the foreseeable inclusion in the CAP appeared as the optimal solution to the problems of Polish agriculture, lifting a burden of agricultural reforms from politicians’ shoulders. The growing importance of agricultural lobbies, inept policies of the subsequent governments and paradoxical trends in the preparations for EU accession considerably limited the chances of reforms in the sector. Overall, the underlying weaknesses of domestic policies in the agriculture area explain why Polish governments attached such great importance to the outcomes of the accession negotiations with the EU in the agriculture chapter. 243

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The EU-Polish negotiations on agriculture The second set of research questions concerned the bargaining processes between Poland and the EU. The analysis was to explain the dynamics of agricultural negotiations as well as the results achieved, namely what were the factors that influenced bargaining processes, what actors were especially powerful and whose interests were finally secured during the talks on agriculture. In doing so the study has taken a closer look at the national preferences in Poland regarding agriculture, the EU preferences for accommodating the new member states to the CAP, the institutional structure of the negotiation process as well as at the differences in bargaining power of the negotiators.

Clashing preferences Concerning the first set of factors, it has been found that the political economy of agricultural bargaining between Poland and the EU was driven by the fundamentally divergent preferences of the negotiating actors. The deep division between the EU and Poland as to acceptable negotiation outcomes made agricultural bargaining a particularly difficult part of the accession talks. The Polish negotiators began the agriculture talks with the EU with a very restrictive negotiation mandate. Keeping in mind the vehement farmers’ protests from 1998 and 1999 and the hard-won internal compromise with farm organisations, the Polish government adopted an extremely hard-line position in the negotiations with the EU. The EU bargaining set as regards agricultural integration and the accession of new members was also very limited. The EU principal concerns were related to the financial consequences of the full inclusion of the large Polish agricultural sector and the agricultural sectors of other CEECs to the CAP. Although both the EU and Poland have shown preference for maintaining agricultural support in the future at a relatively high level, the approach to and evaluation of individual elements of support were different. The Polish preferences towards greater support for farmers, particular attachment to market244

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support instruments and direct payments were determined by the specific structural problems of the Polish agriculture sector – high agricultural employment, lack of capital and weak international competitiveness. The most politically sensitive issue in agricultural negotiations concerned direct payments to agricultural producers. The negotiating parties held quite opposite views as to their possible impact on agriculture sectors of the new member states. The Polish government considered them as indispensable for restructuring and modernisation of agriculture. In contrast, the EU argued that direct subsidies might have created a wrong sort of incentives to consolidate semi-subsistence farming in the CEECs, and hence hamper restructuring. The negotiating position of the EU, regardless the demands of the candidate countries, had to fall in line with the financial framework decided by the European Council in Berlin in March 1999, which did not envisage direct payments for the new member states. However, the EU approach was not only determined by the budgetary limits imposed by Agenda 2000 provisions but also by the changing paradigms of agricultural development in the EU. In 1999 the CAP was divided into two pillars, the first including traditional market support and direct payments and the second the issues of rural development. The reforms of the CAP envisaged freezing the agricultural budget in the next financial perspective 2007-2013, limiting the importance of traditional market-support instruments and increasing the importance of the second pillar of the CAP. Overall, the EU attached great importance to the issues of rural development during the negotiations with the CEECs, indicating that adequate structural support for agricultural sectors in transition countries is a better policy choice than direct support to agricultural producers. In the situation of low domestic support for farm sectors in the CEECs, even partial inclusion in the CAP was presented by the EU as clearly beneficial for the newcomers. These divisions between Poland and the EU were the natural consequence of differences in the level of development of the Polish and the EU agricultural economies. The EU, having the experiences of large agricultural surpluses and concerned with the consequences of intensification of agricultural production, has not been basically prone to support the development of agricultural production in the new member 245

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states. By contrast, the Polish negotiators were focused on securing the most favourable terms of accession under the traditional schemes supporting agricultural producers. The Polish government repeatedly emphasized that the period of systemic transformation had not been a good reference point for setting the conditions for the long-term development of the sector. Though the issues of rural development were officially acknowledged as a very important element of agricultural policy, the concerns of the Polish negotiators over ensuring adequate support for agricultural producers played the primary role during the negotiations with the EU.

Double edged strategies or simple sequential bargaining? To explain the dynamics of agricultural bargaining, apart from actors’ preferences, positions and interests, the study has considered the institutional structure of negotiations and the bargaining power of the negotiators. The analysis started from the observation that the accession negotiations are an example of highly asymmetrical international negotiations. Not only the higher level of economic development of the EU countries, but also the increasing complexity of the EU institutional structure and growing body of acquis communautaire have made the incumbents the more powerful actor in the accession talks. Applicant countries are generally in a much weaker bargaining position. It has been found that this asymmetry has made the negotiators especially conducive to use doubleedged strategies. Basically, in all international negotiations involving national governments, international and domestic levels are intimately interrelated. The domestic considerations are constantly present during international negotiations and developments in international negotiations influence domestic politics. However, additionally, the present study has confirmed Putnam’s intuition that negotiating governments strategically play at both levels. The dissertation’s research hypotheses have been robustly confirmed by the empirical evidence from the EU-Polish agricultural negotiations. The dissertation has provided the support for the theoretical proposition that a weaker negotiating actor is prone to use

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domestic constraints for strategic aims in international negotiations. At the same time, the negotiating governments are prone to use developments at the international level to achieve strategic aims in the domestic arena. Certain negotiation issues and concessions extracted from the EU were considered important instruments for increasing political support domestically. Political gains in Poland from playing in the domestic arena with agricultural accession issues were significant, especially for peasant parties that competed for rural votes. Notwithstanding, given the results of qualitative analysis, the research hypotheses have required revision to fully reflect the reality of the EU-Polish accession negotiations on agriculture. The Polish negotiators were not exclusively focused on actions that were to convince the negotiating partner about a very constricted internal bargaining set. Basically, the behaviours of the key negotiators of both sides proved to be driven by cooperative strategies. The Polish negotiators’ behaviours during bargaining with the EU combined both ‘tied hands’ and ‘cutting slack’ strategies. This approach was determined not only by the overall cooperative character of the accession talks during, in which the interested parties set the conditions of integration and co-existence in one organization, but also by the inherent structural characteristic of the Polish political scene. The existing internal divisions within the Polish negotiating team made double-edged strategies more effective and credible. Additionally, there was a close cooperation between the EU negotiating mediator, the European Commission, and the officials of the Polish government. In fact, the European Commission as a supranational institution adopted actions that were to expand the bargaining sets of both negotiating parties, though obviously the actions addressed at the Polish win-set were dominant during the bargaining processes. Also in the case of the Polish negotiating team, the bargaining strategy based on tied-hands arguments was dominant. The most important alternative explanation, according to which international negotiations are constructed as sequential bargaining starting from internal negotiations at the domestic arena and then proceeding to negotiations in the international arena, seems not to find validation in empirical analysis. In such 247

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a theoretical model, negotiating governments are treated as unitary actors and domestic constraints as constant parameters. According to this view, negotiators do not simultaneously engage in domestic and international games. The explanation based on this approach would primarily focus on the sequence of moves made in international negotiations, analysing offers parties make during bargaining and responses to them. The bargaining dynamics on agriculture between Poland and the EU could be then seen as driven by alternating offers and new options that emerge in a multiple-issue bargaining game. Very demanding negotiating position of the Polish government on agriculture would be explained by the existing set of national interests and strategic motives to start negotiations from very high positions. Basically, the major part of the empirical material would allow one to see the strategies applied in the course of the negotiations as developed quite independently of domestic political considerations and the shifts in actors’ positions as resulting from a simple exchange of interactions at the international level. Nevertheless, there are examples of actions that have had a clearly double-edged character. The dissertation’s argument has not been supported by the explicit declarations of negotiators and key decision-makers. Negotiators and decision-makers have not admitted that actions taken in the domestic arena were conceived as a part of a bargaining strategy for the negotiations with the EU or that negotiation behaviours at the international level were strategically used for domestic purposes. However, the negotiators must have been acting in this way, even if they do not explicitly admit it, because a different interpretation would make some of their actions irrational. Overall, standard bargaining models do not fare well in accounting for asymmetric international negotiations involving domestically constrained governments.

Outcomes of bargaining Differing preferences of the players as regards agriculture and its financing, specific institutional settings of the accession negotiations and the weaker bargaining position of the Polish negotiators seem to best explain the course and

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dynamics of the EU–Polish negotiations on agriculture. However, this does not provide an answer whether the use of double-edged strategies proved beneficial for the negotiators. Specifically, did the usage of domestic constraints in the negotiations with the EU contribute to better outcomes for the Polish government in the agricultural chapter? And whose interests have been secured in the finally negotiated agreement on agriculture? As highlighted in the previous chapter, the negotiated terms of accession for agriculture, though not fully reflecting the expectations of the Polish government, have been described as very satisfactory. The effectiveness of the applied bargaining strategies can be shown by taking as an example the most debated negotiation issue – direct payments. Both the EU and the Polish government shifted their positions as regards this element of the negotiated deal. The EU agreed to cover Polish farmers with some percentage of direct subsidies and the Polish government withdrew from the demand for full direct payments. Fundamentally, granting direct payments to farmers in the CEECs has not burdened the EU with additional spending. The accession of the new member states was to be financed within the ceiling set at the Berlin European Council in 1999. The negotiations did not revolve then round the issue of increasing financial means for the new member states but round the issue of allocating available financial resources to the preferred aims and funds. Following the pressures of the Polish government and governments of the other candidate countries, the EU agreed to shift financial resources, originally designed for structural operations, to support agricultural sectors of the new member states. Not only financial means for structural operations were lowered, when compared to the initial Berlin proposal, but also the reallocation of funds from the second pillar of the CAP devoted to rural development to the first pillar encompassing market support and direct payments was made possible. An additional gain was related to the possibility of topping up direct payments from the national budget. Therefore, a tough bargaining position on agriculture and the image of highly constrained negotiators brought measurable effects. The level of direct payments in the first year of membership rose from 0 to 55 percent. 249

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These outcomes – greater support for farmers at the cost of decreased structural funds – have reflected the endeavours of the Polish government to secure adequate conditions for future development of the lagging agricultural sector. The opposition of the subsequent Polish governments to the EU’s view of accommodation of new member states’ agricultural sectors to the CAP was due to the fear of marginalisation of Poland in Europe as an agricultural producer. However, one cannot lose sight of the fact that the pressure for such outcomes was also due to political considerations and the strong dependence of Polish politicians on rural votes. Obviously, a government able to secure direct financial support for farmers could improve its reelection prospects. In this light, the question whose interests have been secured becomes easier to answer. The domestically chosen path of direct payment distributions says much about substantive Polish preferences in the agricultural area. The government was determined to ensure the best possible financial conditions of the Polish agricultural sector’s integration to the EU. However, the finally negotiated support for agriculture has not been distributed

according to economic criteria. The

choice of the simplified system for distribution of basic direct payments, i.e. independently of production type, was fundamentally supported by the expected changes in the CAP, particularly by the plans concerning total decoupling of direct payments in the EU. Additionally, the introduction of the standard system, applied in the old member states, was very costly and seemed to go beyond the capabilities of the Polish administration. Nevertheless, the adopted solutions, particularly the decision to distribute direct payments among all farmers that own or lease at least one hectare of land maintained in good condition – though more just from a social point of view, may be considered as slowing down structural changes in the sector. For farmers owning very small farms, and not producing on the market, such aid will basically play the role of a welfare payment. Leaving out of account subsistence and semi-subsistence farmers, it can be concluded that the adopted solutions primarily protect the interests of agricultural lobbies and rural parties for which the preservation of the current structures in agriculture continues to be politically beneficial. Overall, the negotiated higher direct payments, taking 250

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a form of area-related payments to be distributed among all farmers and lower financial means under the second pillar of the CAP support the duality of agricultural structures in Poland. It can be expected that as a result of the integration to the EU and increased competition from the side of EU farmers, the number of farms quitting production will grow. However, thanks to the secured conditions of accession – i.e. thanks the above-mentioned distribution of support under the first pillar of the CAP and, on the other hand, thanks to the whole range of structural programmes and special financial support offered by the EU for semi-subsistence farms, reform processes in Polish agriculture can be expected to be rather of a slow and gradual character. Basically, different negotiation outcomes and different concepts of the agricultural sector’s integration to the EU would seriously upset the social and political equilibrium in Poland. Therefore, comparing the finally negotiated conditions of accession for agriculture with domestically formed preferences, we can conclude that double-edged strategies, showing the power of agricultural say in Poland and the image of a domestically constrained government, proved efficient.

Limitations of the study Before considering major implications of the present analysis, the basic limitations of the study should be reviewed. The first important limitation is related to the fact that the EU-Polish accession negotiations have been recently concluded. The lack of a greater time perspective could obscure certain facts and processes.

The empirical evidence was gathered in the period of peak

negotiations, when the access to key negotiators and other officials engaged in the process, due to obvious time constraints, was highly limited. Furthermore, general unwillingness of negotiators to speak of bargaining tactics and planned actions in the period of the most intense negotiating effort also played a role. Therefore, there was a need to supplement personal interviews and questionnaires with interviews with relevant actors run in the press, which inevitably have a lesser research value. Nevertheless, the high political character of the studied process largely facilitated gathering such empirical materials. Thanks to the strong public 251

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interest in the accession negotiations, government agencies, different research institutes and media have provided detailed information on the course and outcomes of the negotiations. The second major limitation of the dissertation’s argument is that in-depth analysis of national preferences has been carried out only in reference to Poland. Although such an approach has been justified by the fact that the Polish agricultural sector and its accession to the EU have been at the centre of research interest, the detailed analysis of national preferences also in the EU member states would be more compatible with the theoretical framework and might have improved the quality of the study. Therefore the analysis has not fundamentally confirmed that the governments of EU member states were playing at the both levels simultaneously. The empirical analysis showed only that the EU negotiators resorted to EU internal constraints (budgetary limitations, divisions between the EU member states as to the CAP future) and have focused on expanding the Polish bargaining set. The third important limitation is that the study has been basically limited to the analysis of agricultural bargaining with little attention paid to the problems in other negotiation chapters. The study suffers then from disregarding the possible impact of bargaining processes in other chapters on the course and outcomes of agricultural negotiations. Fundamentally, only the issues that were directly linked to the agricultural part of the accession talks – negotiations over agricultural land and budgetary matters – have been considered in the study.

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Concluding remarks The present analysis has contributed to the strand of research showing the strength of two-level games in international negotiations, particularly in negotiations between parties that are in close economic, political and diplomatic relations. Despite the indicated limitations, there are some basic implications of the empirical findings of the present study. They refer both to the processes of agricultural policy-making in transition countries and to future bargaining processes on agriculture between Poland as well as other newcomers and the EU member states. Concerning the first set of basic implications, the study suggests that some paradoxical trends in preparations for integration with the EU, hampering reform processes in transition economies, may arise. Obviously, the thesis that the expected integration to the CAP proved to have an adverse effect on transformation dynamics in Polish agriculture is not tantamount to claiming that the accession to the EU as such is not appropriate for reform processes in this sector of an economy. Taking into account the specificity of agriculture and economic arguments justifying state intervention in the sector, the accession to the CAP emerged as a natural phase in the transformation process. However, there have been undoubtedly some negative patterns in agricultural policy making in the pre-accession period in Poland and part of them seemed to be directly connected with the expected integration to the EU. It would be then necessary to define practical indications for optimal arrangements between integration and transformation processes in agriculture, namely to establish a transparent model for agricultural policy making in transition countries that wish to become members of the EU. Agricultural economists indicate that the costs of accession in the agricultural area largely depend on the extent of policy alignment ahead of accession (cf. Hartell/Swinnen, 2000a). The fundamental task does not refer to raising the overall support to the EU level, which due to financial and budgetary limitations would be hardly achievable in transition countries, but to aligning the methods and structure of agricultural support to that applied in the EU and to creating a stable framework for intervention on agricultural markets. The case of 253

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Poland has indicated that unstable agricultural policy and decisions for intervention on agricultural markets taken under the pressure of agricultural lobbies strengthen the political position of rural interest groups that oppose integration processes. There also appear questions concerning the role of the EU in stimulating structural changes in agricultural sectors of the transition countries. The experiences of the first decade of relations between the EU and applicant countries show that the strategy adopted in the agricultural area has not improved the prospects for smooth integration between the EU and the CEECs agricultural economies. The opposition of EU member states to greater trade liberalisation in the agricultural area and clear inadequacies of the association agreement signed at the beginning of transformation have made structural changes in agriculture more difficult. Only in the final stage of the accession negotiations did both parties manage to arrive at trade agreements providing for greater integration in the agricultural area. Moreover, the EU structural aid programme specifically addressed to agricultural sectors of the candidate countries has appeared relatively late and has proved difficult to use. Not only weak preparation of administration structures of the candidate countries, but also complex EU rules for aid management and long procedures delayed the implementation of the programme. By and large, these remarks can be considered as being of help for transition countries that are or will be in the process of preparations for EU accession. In the author’s view, there is a need to study more extensively the relations between integration and transformation processes in agriculture, with the view of avoiding some traps that evidently exist at the intersection of these two macroprocesses. At the same time, the reported weaknesses of pre-accession agricultural strategies should be taken into account while designing future relations between the EU and candidates for membership. There are also important implications for future negotiations on agriculture between Poland and the EU. Given the economic and political importance of agriculture and the strong position of agricultural, eurosceptic and anti-EU lobbies in Poland, future negotiations between Poland and the old member states 254

7 Summary and concluding remarks

regarding the agricultural policy regime in the EU are commonly expected to be one of the most difficult areas of negotiation. Considering the problems of agriculture in Poland and in other CEECs, it is expected that new member states would be willing to maintain agricultural expenditure and support for their producers at relatively high levels. Instead, the political economy analyses of the developments in the EU agricultural policy show that preference of the old member states to cut agricultural expenditure will be greater once enlargement to the east has taken place (cf. de Gortar/Pokrivcak, 2000). This has made researchers suggest that after enlargement to the east, reforms of the CAP would be much more difficult since the coalition of the new member states may use their common veto power to block unwanted changes. The prospects for reforms in this policy area have been considered far greater in the EU composed of 15 member states (cf. Henning/Glauben/Wald, 2001). Indeed, the core reforms proposed by the European Commission in the mid-term review of the CAP in July 2002 were adopted soon after the concluded accession negotiations, in June 2003. Undoubtedly, the processes of the CAP reforms will continue to move forward and the concerns about the chances for agreement between the old and new member states will still be at stake. However, the conclusions that can be drawn from the present analysis with reference to future agricultural bargaining are quite optimistic. The study has demonstrated that agricultural interests have indeed featured prominently in the EU-Polish accession negotiations. The Polish government presented a very tough bargaining position and used domestic constraints to extract greater concessions from the EU in the agricultural area. However, it should be remembered that the two-level game approach well explains grand bargains. In day-to-day negotiations within the EU the bargaining reality will probably look quite different and the two-level game metaphor may not account for negotiation dynamics and outcomes. The accession will diametrically change the bargaining environment; the negotiations will not proceed between insiders and outsiders, but between members of a common organization. The importance of domestic constraints for new member states, due to significant changes in decision-making processes and Europeanisation of 255

7 Summary and concluding remarks

administration structures, will probably be less than in the pre-accession period (cf. Lippert/Umbach/Wessels, 2001). Therefore, the impact of anti-reform forces may be smaller than commonly expected. The analysis has also shown that there have been important internal divisions on the Polish domestic scene regarding agriculture. On the one hand, they increased the credibility of bargaining arguments used by the key Polish negotiators, but, on the other, they essentially fostered agreement at the international level. These conditions basically expand the Polish bargaining set as regards agricultural issues. The existing divisions on the domestic scene in Poland – between anti-reform and pro-reform parties – will probably have a great impact on future talks on agriculture within the EU. However, it is now hard to predict negotiation positions and bargaining behaviours of Poland or any other new Member State. Likewise, it is questionable to assume that the new member states will form a coalition opposing the CAP reforms. We might as likely see coalitions and groups that combine new and old member states and transcend traditional divisions between eastern and western Europe. These general remarks indicate that there are many interesting questions related to the possible course and outcomes of future talks on agriculture within the Union comprising 25 or more member states. Political economy analyses of possible impact of the CEECs accession on reforms of the CAP would be valuable contributions to the literature on East-West agricultural integration. It is hoped that the present study, delving into the political economy of the Polish agricultural sector’s accession to the EU, has at least partly enriched this literature.

256

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