1.5 Government of T. Blair
1.5.1 Social Chapter
In 1997 Labour party, headed by T. Blair, was elected. The Blair government immediately demonstrated its pro-EU credentials by incorporating the Social Charter into UK law. It stood back, however, from participating in the launch of the single European currency in 1999. The government’s official position on this issue was that it supported the single currency in principal, but would not join until economic conditions were appropriate. The government also promised that the UK would not to join until the electorate had voted to do so in a referendum. [3, p.24]
A new government found itself plunged immediately into a new round of treaty amendment negotiations. The proposals aired in the Amsterdam Treaty were relatively modest in effect. The Amsterdam Treaty was signed in 1997 and the UK agreed with following issues:
· On human rights, discrimination on the grounds of gender, race, religion, sexuality and age was outlawed.
· Free movement of people was guaranteed (although UK and Eire allowed keeping their border controls).
· Law on divorce, immigration, visas and asylum were to be common throughout the EU.
· Europol – an intelligence-gathering agency – to begin operations.
· Budgetary deficits to be regulated once the single currency introduced.
· Coordination of employment strategy between member states.
· Social Chapter to be incorporated into the Treaty following UKs signing up to the Social Chapter in 1997.
· High ranking civil servants to coordinate common foreign and security policy.
· More powers for the European Parliament.
The UK could not agree on the following:
· No progress on reforming the EU institutions.
1.5.2 The Treaty of Nice
The Treaty of Nice was signed in 2001 and entered into force in 2003. It introduced changes to the EU institutional machinery in preparation for enlargement. From 1 January 2005, the number of votes allocated to each Member State in the European Council changes to take account of prospective new members. The total rises from the 87 votes held by the 15 Member States until June 2004 to up to 345 votes held by a potential 27 Member States. France, Germany, Italy and the United Kingdom will each have 29 votes. Assuming 27 Member States, the total required for a qualified majority will increase from 62 to 255, and for a blocking minority from 26 to 91. From 2005, the European Commission will comprise one member from each country, although when the EU reaches 27 members, the number of commissioners will be capped at a figure less than the total number of Member States. However, provisions in the Constitutional Treaty, if adopted, will supersede some of the Treaty of Nice provisions.
1.5.3 Treaty of Accession
The Treaty of Accession, signed by 25 heads of state in Athens in April 2003, provided for the accession to the EU of ten members on 1 May 2004. Under the Treaty, nationals of the ten new Member States have the right to move freely within the EU from that date for all purposes except for work. The Treaty allows for the imposition of transitional work restrictions on nationals of the new Member States, except Cyprus and Malta, until 30 April 2011. United Kingdom has waived its right to impose these transitional work restrictions, subject to certain safeguards.
In June 2003, the Convention’s findings were presented in the form of a draft Constitutional Treaty at the Thessaloniki European Council. 29 October 2004 the 25 EU countries sign a Treaty establishing a European Constitution.
1.5.4 under the Constitutional Treaty:
Member States will confer competences on the EU;
· national parliaments will have a role in monitoring and enforcing subsidiarity;
· a full-time president of the European Council will work alongside the existing presidents of the European Commission and the European Parliament;
· an EU foreign minister will bring together the roles of external relations commissioner and council high representative;
· a legally binding charter of rights will be introduced;
· the EU will become a single legal ‘personality’ (until the Treaty is ratified by all Members the EC and the EU have separate legal personalities);
· there will be greater co-operation on social security, justice and home affairs;
· A simpler voting system will be introduced where decisions would pass if supported by at least 55 per cent of Member States, representing at least 65 per cent of the EU.
When citizens in both France and the Netherlands voted 'No' to the Constitution in referendums in 2005, EU leaders declared a "period of reflection".
13 December 2007 the 27 EU countries sign the Treaty of Lisbon, which amends the previous Treaties. It is designed to make the EU more democratic, efficient and transparent, and thereby able to tackle global challenges such as climate change, security and sustainable development. Before the Treaty can come into force, it has to be ratified by each of the 27 Member States. [5]
Chapter 2. European economic integration
2.1 European Community Budget
2.1.1 The budget as a source of problems among the EU partners
The general budget of the European Community is an account of revenues from specific resources and expenditures for specific purposes, required by law to be in expostbalance. It remains insignificant in size (about 1 per cent of the EU GDP, while members' budgets average up to 40 per cent of their GDP). The narrowness of its structure affects both the contributions to it and the payments from it, 'the budgetary incidence', which is different for each member state. Therefore, unintentionally the budget functions as an instrument of inter-country redistribution, which in the 1970s propelled the Community into an acrimonious crisis that threatened to undermine the very process of European integration. The cause of this crisis was the members' net contribution to the EU budget, the difference between what they paid in and what they received from the budget. Germany and, after its accession to the EU, the UK were the only two member states that paid more into the budget than they got out of it. However, while at this time Germany's relative prosperity (measured by real GDP per head) was well above the EU average, the UK's was below the EU average. This problem was caused by two aspects of the budgetary process originating in the revenue and the expenditure sides of the EU budget. [11, p.52]
2.1.2 Budgetary revenues and expenditures
At the beginning of the 1980s, when the crisis reached its peak, the EU budget was financed by its 'own resources' which were made up of:
· customs duties, agricultural levies, and sugar levies on imports from non-EU countries;
· The members' contribution based on value added tax (VAT). At that time, a significant proportion of UK imports were coming from outside the EU, while as an indirect tax the VAT is regressive and does not reflect ability to pay. As a result, the UK was a major contributor to 'own resources' because of its dependence on non-EU imports and its VAT payment, both of which overcharged it relative to its prosperity.
Budgetary expenditure on Community policies was dominated by a few items which caused different distributional effects among the partners:
· Expenditure on the CAP which until the mid-1980s accounted for more than two-thirds of the total and went mostly to member states with relatively large surplus-producing agricultural sectors, such as Denmark. Germany and the UK, with relatively small agricultural sectors, were net importers of agricultural products and therefore low recipients of CAP spending.
· The 'structural funds' for regional development and social policy which accounted for less than 20 per cent of the total. The UK benefited from the regional fund but, set alongside the CAP spending, the sums received were insignificant. [8, p.12]
2.1.3 Reforms
The commitment to complete the Single Market programme by 1992 and to move towards EMU finally compelled the Community to implement the long overdue radical overhaul of Community finances. In addition to the 'traditional own resources' of agricultural levies (now replaced by tariffs), sugar levies, and customs duties and the 'third' resource based on VAT, a new topping-up 'fourth' resource was added based on members' GNP and thus reflecting each country's relative prosperity. The Community decided also to restructure the expenditure side of the budget by:
· increasing real expenditure by about 22 per cent to help promote economic and social cohesion between the EU member states and regions for accelerated progress towards EMU;
· Increasing the structural funds' allocation in real terms by 40 per cent and to agriculture by 9 per cent.
These developments changed the structure and the size of the general budget.
Although these innovations were generally on target, the remodeled budget continued to create unfair inequalities in 'net positions' between countries. Therefore, the Commission had to admit that 'the budgetary imbalance of the UK is no longer unique' but extended to Germany, the Netherlands, Sweden, and Austria, which went through budget deficits with the EU larger than the UK (as a percentage of GNP), and naturally wanted similar rebates.
In 1999 the European Council decided instead to:
• reduce the shares of these four countries in the financing of the UK correction to 25 per cent of its normal value;
• neutralize any windfall gains to the UK, caused by enlargement or other future events;
• cut the maximum call-in rate for the VAT resource so that the more equitable
Fourth resource, a proportion of GNP, makes the largest contribution to the budget. [11, p.53-55]
2.2 Common Agricultural Policy
The Common Agricultural Policy (CAP) is a system of European Union agricultural subsidies and programmes. It was proposed in 1960 by the European Commission. It followed the signing of the Treaty of Rome in 1957, which established the Common Market. [7, p.5]
2.2.1 CAP objectives
The initial objectives were set out in Article 39 of the Treaty of Rome:
· to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour;
· to ensure a fair standard of living for the agricultural Community;
· to stabilize markets;
· to secure availability of supplies;
· to provide consumers with food at reasonable prices.
From the beginning of European integration, farmer’s income was the issue that dominated the debate on agricultural policy. Nevertheless, all CAP objectives have largely been achieved, but at a high cost. [11, p.46]
The latter function was assigned to a specially established fund financed from the EU budget, the European Agricultural Guidance and Guarantee Fund (EAGGF).
2.2.2 CAP policies
The CAP has used an assortment of instruments to achieve its objectives, the most important of which was price-fixing (in a common currency, such as the ecu and nowadays the euro, €) at levels well above the world market prices. Producer’ increased incomes fall short of the coat of the policy incurred by the consumers of the commodity, who paid high prices, and the taxpayers, who finance the EU budget. A direct income subsidy to producers would have achieved the same increase in their incomes at a lower cost.
2.2.3 UK policies
Inevitably, the CAP set up a system of winners and losers among produsers, consumers, and taxpayer and, depending on the relative national production and consumption of agricultural products, between the EU states. The UK, which is a net importer agricultural commodities, had before joining the EU set up policies on imports, mostly from Commonwealth countries, at prices determined competitively by international trade, and supported its farmers by production subsidies, called deficiency payments, financed largely by taxpayers. Since UK producer support prices before joining the EU were about 50 per cent lower than CAP prices, the price increases affected both UK consumers and producers, but differently. The accession stage of UK membership lasted five years and the actual pattern of adjustment was different for each comrnodity.
As a result, during the period 1972-86 the total volume of UK agricultural output grew by more than 20 per cent, while the share of food and agricultural imports in the real value of UK imports jumped from 40 to 60 per cent, with adverse welfare and balance of payments effects arising from 'trade diversion', the switch from low- to high-cost suppliers. Not surprisingly, the CAP is regarded by UK consumers and taxpayers as a device by which the EU generously subsidizes inefficient (French and Italian) farmers from the EU budget—to which they complained that they made excessive contributions.
2.2.4 CAP inconsistencies
However, the good times for the farmers did not last long. The entry of the UK into the EU coincided with the rise in the price of oil, which caused a long period of inflation and unemployment. From the mid-1970s, despite increases in the volume of output, farm incomes fell as CAP support prices failed to keep pace with inflation in input prices, such as increases in the real cost of labour, interest payments, and rents. Inevitably, these effects changed the structure of UK agriculture; for example, in the first ten years reducing the dairy farms by 50 per cent, the cereal farms by 30 per cent, and the employment of farm labour by 25 per cent. At the same time, increasing EU budgetary expenditure, mounting surpluses of agricultural output, and international pressures by agricultural exporting countries induced several attempts at reforms. Those inspired by mainly budgetary constraints, such as 'milk quotas' and 'co-responsibility levies', were supply controls based on previous volumes of production and attempted to alleviate the budget crises by penalizing excess production without correcting price distortions which continued to inflict high welfare losses. [11, p.47-50]
2.2.5 The 1992 and 1999 reforms
In 1992, the MacSharry reforms (named after the European Commissioner for Agriculture, Ray MacSharry) was the first significant reform of the CAP. Support prices were reduced and compensatory “direct payments” were introduced. These compensatory payments are still being made today – around €18 billion a year of direct payments date back to this first reforms.3 similar reforms occurred in 1999, but the next major step was taken in 2003 when the link between direct payments and production was broken. This reduced the negative economic impact of the payments, and made receipt dependent on meeting minimum standards of good agricultural and environmental condition. [1, p.19]
Although with these reforms the EU took a big step towards market liberalization, the process of change was slow, and this triggered the need for further reforms. The new agreement for CAP reform was signed in 1999.
The new reforms extended the direct farm payments and the cuts in support prices by as much as 50 per cent. They also attempted, but without success, to ease the 'budgetary imbalance' of the big contributors to the EU budget—Germany, the Netherlands, Austria, Sweden, and the UK—by a partial 'renationalization' of farm spending which would have cut CAP's income support from 100 to 75 per cent, the members paying the balance to their own producers. [11, p.51-52]
2.2.6 The 2003 reforms
The next major step was taken in 2003 when the reforms aimed to ‘decouple’ direct payments from the production activity. This reduced the ‘production for subsidy’ link of the payments, and made receipt dependent on meeting minimum standards of good agricultural and environmental condition—the so-called ‘cross-compliance’ conditions. The centerpiece of the 2003 reforms was the ‘Single Payments Scheme’ (SPS), aimed at simplifying all the disparate product-specific area and headage payments into one single payment per farm. [13, p.7]
The basic elements of the new CAP:
• The CAP consists of a 'single farm payment', independent of production.
• The full granting of the single farm payment and other direct payments are linked to a number of statutory environmental, food safety, animal and plant health, and animal welfare standards ('cross-compliance') which will also contribute to the maintenance of rural landscapes.
• There are revisions to the CAP policy by price cuts for most of the products of key sectors traditionally supported (such as cereals and dairy products).