Political uncertainty about the negative reaction to open agricultural markets can be counteracted by quickly integrating the CEEC and CIS countries into WTO and putting their trade regimes under WTO discipline. Furthermore, as WTO members, these countries will have access to WTO dispute settlement bodies, which can be of great importance when exports dumped by industrialized countries are glutting domestic markets. WTO membership also strengthens domestic policies and institutions, bringing them into line with the provisions of the main international trade-related agreements. The changes required in national policies and institutions may be dramatic. But ongoing trade liberalization in the context of WTO will lead to specialization, efficiency gains, and increased agricultural trade. Bringing their transition economies under WTO therefore should be at the top of the CEEC and CIS agendas.

Furthermore, the amount of subsidized exports by Hungary, Poland, and the Czech and Slovak republics has been set low. Model simulations have shown that exports would far exceed the subsidized level if the full supply response to the price incentives offered by the EU’s Common Agricultural Policy (CAP) were realized. Therefore, the CEECs’ obligations to WTO have been put forward as an argument for further liberalizing the CAP. The details of WTO conformity and EU enlargement will depend on the timing and sequencing of EU accession. If the EU continues to reform the CAP by further decoupling domestic support from production, price supports could be exempted from further reductions. However, this is open for debate and depends, first, on whether the “compensatory payments” for EU farmers can be extended to farmers from the CEEC, and, second, on whether such forms of domestic farm support will continue to be acceptable measures after the next round.

Agricultural trade liberalization has progressed at different paces in the CEECs. Estonia, for example, significantly liberalized its trade regime from the outset. Hungary and Poland liberalized somewhat during the first period of reforms, but in Poland signs of protectionism are again mounting. For some products and countries an increase in protection of agricultural producers may result from EU accession. For CEECs that are WTO members, accession agreements have strengthened trade-related reforms.

In the case of the CIS countries, under what conditions will their national agricultural trade systems be integrated into the WTO? Because of pressure from international donors, most quantitative export and import restrictions have been eliminated and export taxes have been reduced considerably in recent years. However, the issue of market access remains controversial. Substantial shares of the food trade, both within and outside the CIS, are still based on barter arrangements and state trading, resulting in discrimination against international, non-CIS competitors. The Ukraine, facing shrinking food exports, raised import barriers in 1997, particularly for livestock products. Market access became less transparent as expensive certification procedures and sanitary standards were increased. A domestic parastatal agency has to certify food products even if they comply with the strict standards of the U.S. Food and Drug Administration or the International Standard Organisation of the EU.

In negotiations with Russia, the process of defining upper tariff bounds for traded products was enhanced when Russia adopted the Harmonized System and thereby international custom codes early in its transition period. This step still has to be taken by other CIS countries. However, Russia has increased nominal import tariffs, and the transparency of the trade regime is limited by numerous nontariff barriers such as cumbersome customs and certification procedures, currency controls, structural and technological impediments, corruption, and intellectual property piracy. Food imports have been hampered by a new food labeling law introduced in May 1997.

To negotiate an acceptable level of domestic support for the agricultural sector is complicated by difficulties in measuring the level of support for CIS countries. It is hard to obtain estimates of indicators like the Aggregate Measure of Support because of problems in tracing the effects of newly implemented support instruments such as credit in kind or soft-budget constraints for former collective farms. Poorly functioning marketing systems also affect the wedge between domestic and international prices. For 1997, OECD estimates of the Producer Subsidy Equivalent (PSE)—one measure of government support—indicate that farmers are again being subsidized after an initial decline. However, PSEs may be reflecting their sensitivity to 1998 exchange rate realignments, which resulted in relative price increases for imported food products. The question remains, therefore, of which base year will be chosen for defining the binding level of domestic support in the accession negotiations with individual CIS countries.

All CIS member states find it difficult to accept definite commitments on any of these issues. Countries like Russia or the Ukraine, for instance, would prefer levels of protectionism similar to those of the EU. However, such high levels of protectionism are opposed not only by free traders like the Cairns Group but also by the EU itself. In this context, the unilateral commitment of a country like Ukraine to disregard the option of introducing export subsidies in the future has to be highly valued.

WTO has formalized the treatment of these regional cooperation agreements. The Committee on Regional Trade Agreements is in charge of examining the conformity of these agreements with WTO rules. For instance, any free trade agreement must include “substantially all trade” without exempting any sectors. However, the free trade agreement that the CIS concluded in the spring of 1998 covers agricultural trade only. Another WTO rule explicitly states that the establishment of free trade agreements or customs unions should be completed within “a reasonable length of time.” This rule could be used as an argument against the lengthy transition periods after integration into the EU during which the agricultural sectors of CEECs will be exempted from adapting to the CAP.

Ulrike Grote and Peter Wehrheim are economists with the Center for Development Research at the University of Bonn, Germany.