Economic Integration

Topics: European Union, International trade, Subsidy Pages: 3 (962 words) Published: May 10, 2013
Outline the main problems facing the CAP pre-reform and discuss the extent to which the Fischler reforms help to solve them. Comment briefly on the significance for the CAP of free trade agreements with the US and CANADA.

The CAP is defined as a set of EU common agricultural policies aiming to ensure a fair standard of living for the agricultural population. The CAP can be regarded as inwards and outwards policies. To protect the local farmers, EU provides agricultural subsidies to enhance the competitiveness of the domestic export products. What is more, there is an intervention price set by EU agency, at which price EU can digest the domestic surplus to stabilise the market and then export the stocks to other nations with subsidies. In the meantime, to suppress those import products with low price, EU set a threshold price that is generally higher than the world price. The difference between the threshold price and the world price is the variable import levy taxed by EU government.

However, through long-turn practice, the CAP is proved to be little problematic. Several negative impacts brought by the CAP need to be considered seriously. The first one is supply problem. Driven by the CAP, local farmers have great motivation to use the advanced farming techniques to enhance the productivity. With the technology advancement, domestic producers are able to increase the output. According to data from European Commission, the crop output grew 20.63% from 2001 to 2010. And other agricultural products also grew in a surprising speed. However, the market demand did not grow so rapidly as supply. Thus, the surplus exists.

In 2007, the UK government stated that during the year, the EU public stock had reached 13,476,812 tonnes of cereal, rice, sugar and milk products and 3,529,002 hectolitres of alcohol, which is far more than the market demand. The phenomenon so called “Butter Mountain” began to worry the EU government.

And this further led to two direct...
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