Select Committee on European Communities Tenth Report



  87.    The CAP has long been in need of reform. The process has begun and the Uruguay round and the McSharry reforms introduced by the then Commissioner have proved their worth. The need now, as the Commission has recognised in its suggestions in Agenda 2000, is to continue the shift from payment for volume production to payment for income support and rural development. It has not been our purpose in this short enquiry to look at the policies needed for the future of farming and the rural community although this will be the subject of a future Report. In the meantime we have limited ourselves to the financial consequences of enlargement. Our present view is that a reform of the CAP which reduces its financial costs is pivotal to the financing of enlargement.

  88.    Under the Commission's suggestions agricultural policy costs would be constrained by the movements of prices towards world market prices and, importantly, by the proposal that farmers in the CEEC10 should not receive any of the compensation payments for reduction in guaranteed prices going to the farmers in the EU15 who have previously had the benefit of these guarantees. The Commission's case for this policy on compensation payments is right, but the introduction of it might well not be acceptable to the applicant countries. We see these issues as requiring urgent negotiation: they should not be allowed to become stumbling blocks to progress towards accession.


  89.    We recognise that there will be a need to address at some time in the future the system of national contributions to the Community Budget. The present system may suit the United Kingdom but is not accepted as conspicuously fair or transparent. In many British eyes the CAP in its application across the EU is an unfair subsidy to be cut back or abolished, but to non-British eyes the United Kingdom's rebate is also a source of dissension in the EU. German sensitivity on their net contribution to the Community Budget is understandable: they have been for long, and are likely to remain, the principal net contributors. At a time when they have been bearing the immense costs of the incorporation of former Eastern Germany (their own very largely domestically financed "enlargement"), when their budget deficit is under strain and there are crucial domestic elections looming, it must be expected that Germany will look for reassurance that the system of budgetary contributions will in due course be reviewed. The Commission argues in Agenda 2000 that the time for such a review is not until the own resources ceiling of 1.27 per cent of Community GNP has to be changed, possibly after 2006. However, we expect there will be strong political pressure from Germany and some other Member States for earlier recognition that a new system will have to be devised.


  90.    We accept that if EMU works well it would encourage stability and growth directly in the euro zone and, maybe, indirectly more widely. At this time we think it is impossible to forecast whether the effects will be beneficial, as we hope. In our report entitled An EMU of `Ins' and `Outs'[22] we said "If EMU goes wrong, the damage will not be limited to the Euro area".[23] We see no reason to change this view. The prospect of EMU gives no justification for making more optimistic assumptions about growth rates; nor does it give cause for pessimism: until its effects are proven, it calls for caution when planning the Budget's inputs and outputs. As for the possibility that the advent of EMU will lead to calls for an increase in transfers to adversely affected regions, we have in previous reports consistently taken the view that EU structural funds are provided for long-term structural development and not to enhance domestic transfer payments. We cannot foresee the impact of EMU on less developed or vulnerable regions and we cannot, therefore, rule out that consideration may have to be given to remedial measures at national or Union level.


  91.    The costs for the CEEC10 of reaching the mandatory Community environmental standards will vary considerably from country to country. Poland has enormous problems in some areas with the quality of its water supply, its waste water disposal and its land contamination. Other applicant countries have lesser problems. It would be unreasonable for the EU to insist on the full implementation of the environmental acquis before accession. We think that the way ahead should be for maximum help to be given to the applicant countries in terms of advice and access to investment capital and for accession to be followed by transitional periods, which may need to extend over ten or more years, determined on the basis of study of the physical and economic practicalities.


  92.    The applicant countries have a long way to go before their social and health safety standards will match those in the EU. In these areas we think that the acquis must be accepted before accession but that there will have to be transitional periods: as always these should be of minimum scope and duration consistent with achievability.

  93.    Freedom of movement between a newly acceding state and the EU15 may not be in the interests of either side immediately at the time of accession. Labour migration has been a fear at the time of earlier enlargements although it has always proved to be exaggerated. It may be that some transitional period is desirable for sound economic reasons as well as on presentational grounds. We see this issue, too, as one to be resolved in negotiation before accession.

  94.     The total costs of meeting the acquis, even after lengthy transitional periods in the sensitive areas of the environment and health and safety and social standards, might in the case of Poland reach some 3-4 per cent a year of national GNP over several years. Costs of this magnitude would absorb entirely the EU's funding for enlargement. It is clear that EU funding will need to be substantially augmented by resources from the international financial institutions and other private sources.


  95.    We attach great importance to the development of strong, capable and honest administrations in all the Member States and the applicant countries. The judiciary and the civil service are the key institutions whose capabilities will determine the effectiveness of the implementation and enforcement of Community law and practice. Without these administrative structures funds will be wasted or mis-applied or even used corruptly. Building such institutions and the supporting structures of a flourishing civil society, including importantly a strong sector of non-governmental organisations (NGOs), should be given a higher priority than in the past in the programmes of aid from the EU to the applicant countries.

  96.    We are encouraged that the Commission is adjusting the Phare programme so that it becomes principally directed to preparing the applicant countries for accession. Like the Structural Funds, the Phare programme needs to be made less bureaucratic and more effective in its implementation. The split of Phare funds 30:70 between institutions and infrastructure investment grants able to be used as co-financing for loans from the international financial institutions are welcome developments.

  97.    We admired the determination of the Polish authorities to train not just a top élite but a substantial corps of bureaucrats able to do business with the Commission and to handle the operation of the acquis. We think that the Community institutions and the national governments of the applicant countries should promote, by funding training and by job exchanges, a strongly rooted understanding of the role of an open and efficient civil service in a democracy.


  98.    We are concerned at the apparent lack of coordination with regard to costs to the countries planning to join both NATO and the European Union. We believe it is vital that those working on the enlargement of the EU and the parallel enlargement of NATO should ensure that the total costs of these two processes which could involve heavy burdens on the accession states are given proper consideration and coordination.


  99.    We do not support "the regatta approach"[24] to opening negotiations with the applicants for accession. It might have some short term diplomatic advantage but once substantive negotiations began the real differences in readiness for accession could not be disguised or ignored. Hopes of early progress would have been raised only to be dashed. We think that negotiations should begin early in 1998 with those countries which have been found by the Commission to be in a position to meet the Copenhagen criteria within the medium term: the 5+1 approach deserves to be approved by the Luxembourg European Council.

  100.    A further consideration which might sway both the existing Member States and the applicant CEECs in favour of the 5+1 approach is that enlargement up to 20 could be more easily and quickly agreed than enlargement to a greater number. This arises from the failure of the Treaty of Amsterdam to deal comprehensively with institutional[25] change. A Protocol[26] was agreed to the effect that the Commission would comprise one national of each of the Member States, but this is conditional on the modifications of the weighting of votes in the Council. The Protocol also requires the convening, at least one year before the membership of the Union exceeds 20, of a conference to carry out a comprehensive review of the composition and functioning of the institutions. We think that the changes envisaged by the Protocol for the membership of the Commission and the weighting of votes in the Council should be agreed well in advance of any accession. However, certain Member States, (particularly Belgium, France and Italy), appear to favour more substantial institutional reform before any further accessions take place. In our view, institutional reform must be tackled promptly so that it cannot be used as a pretext for delaying enlargement.

  101.    An enlargement involving not more than five Member States would be likely to avoid the delay associated with more substantial Treaty revisions. The prospect of a quicker first enlargement has obvious attractions for the countries named in Agenda 2000 as the first five. If all six of the 5+1 were ready to accede together it would become necessary to undertake, as a matter of urgency, a comprehensive review of the composition and functioning of the institutions.

  102.    The applicant countries, other than the 5+1, need to be convinced of the continuing good faith of the Union in advancing their accession as soon as they are ready: a later start in their negotiations need not entail a later accession date. These countries also need to be made aware of the precise criteria which they will have to meet before their negotiations for accession can be started. The suggested European Conference can be expected to play an important part in giving the reassurance required but we think that the atmosphere in which continuing bilateral and multilateral discussions outside the Conference are held will also be important.

  103.    We believe that the economics and the politics of the process of enlarging the Union are inextricable. The prospect of accession has stimulated reform and given impetus to the often painful processes of transition and building democratic institutions and market economies in the CEECs. To appear to postpone or delay accession beyond what is strictly necessary for the benefit of both sides will put at risk the success of the enterprise. Danger could come from outside the applicant countries from a shrivelling of foreign direct investment and from inside by disillusion and political instability. The virtuous circle of political reform strengthening economic reform and speeding the movement towards accession which has been apparent in recent years must not be slowed or reversed.

  104.    The Committee considers that Agenda 2000 raises important questions to which the attention of the House should be drawn, and makes this Report to the House for debate.

22   11th Report, Session 1995-1996, HL Papers 86, 86-I. Back

23   Paragraph 116. Back

24   Paragraph 71 above. Back

25   The only matter conclusively decided was the upper limit (700) placed on the membership of the European Parliament. Back

26   Protocol on the institutions with the prospect of enlargement of the European Union. This Protocol refers to the modification of the weighting of the votes in the Council "whether by re-weighting of the votes or by dual majority". Back

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