Regional Integration: Implications for Agriculture in South- Eastern Europe Garry Christensen

The Nature of European Regional Integration SHALLOW INTEGRATION – Trade Liberalization Versus DEEP INTEGRATION – Common Markets – National Policy Harmonization – Mobility of Capital and Labour

Trade Liberalization and Shallow Integration Bilateral and Regional Free Trade Agreements Customs Unions Trade Creation Trade Diversion Terms of Trade Effects

Mechanisms for Deep Integration Promote Capital Flows and Foreign Direct Investment Promote Free Movement of Labor Institutions to Manage Integration Improve Communication and Transport Infrastructure Establish Monetary Union

Mechanisms for Deep Integration – continued The Harmonization of National Policies for – Domestic taxes and Subsidies – Fiscal, monetary and exchange rate policies – Product and Factor Market Regulation (anti-trust laws, commercial law, product standards)

Integration of Developed and Developing Countries Trade Liberalization – Non-reciprocal versus Reciprocal Trade Preferences – Timing and Sequencing of Reform Three Tier Structure of Countries – EU-15 (full EU import protection & budget support) – Accession – 8 (full import protection, partial budget support) – SEECs – (no EU import protection, no budget support)

Trade Liberalization + Deep Integration = Economic Growth Transfer of capital, technology and information to increase productivity Increase in Foreign Direct Investment Remove rent-seeking activities and imperfect competition Efficiency Gains Imports of modern equipments, machinery

Implications and Lessons for Agriculture Agriculture Trade Liberalization is difficult and slow (paths to integration…) Policy reform and convergence facilitates deep integration (sequencing…..) Deep Integration is a realistic objective with substantial benefits Potential benefits of regional integration are huge, but not all will benefit.

Implications and Lessons for Agriculture (continued) Great potential for FDI to deepen and accelerate integration (actual FDI is low…) Supermarket growth as a powerful vehicle for faster and deeper integration