Electronic Library of Scientific Literature - © Academic Electronic Press
Volume 50 / No. 5 / 2002
Richard OUTRATA
Problems of economic and social consequence of the EU extension towards the East gained an importance recently not only from the EU point of view, but also, and above all from the point of view of candidate countries. The interest of candidate countries to know the consequences of integration stems from the natural need to identify the so-called integration assets for the purpose of the strategy of government’s economic policy. There is also the public pressure to get information to generate rational expectations of citizens for the decision in future referendum on the EU entry.
Naturally, the sense of integration of candidate countries into the EU lies in the expected real and economic convergence towards the EU. One can therefore ask the theoretical question whether Slovakia, which shows still relatively large setback in the economic level and economy competitiveness behind that of the EU average, should enter the EU in the assumed date in the year 2004. Would it not be better to enter later when the country reaches a certain level of economy’s accomplishments? Based on the results of the Study on Economic and Social Connections of the Slovakia’s Entry into the EU prepared by the Institute of Slovak and World Economics SAS in Bratislava the author proves that generally positive effects can be achieved already at the entry in the year 2004. Just on the contrary it appears that the EU entry can just accelerate the process of real economic and social convergence towards the EU. This conclusion is based on the analysis of possible relevant effects of Slovakia’s integration into the EU. One has in mind above all the integration effects in the narrower sense, budget effects, and areas of implementation costs relating to the EU standards and effects of the overall economic and social convergence.
Within the framework of integration effects in the narrower sense, one has to consider in the first place Slovakia’s integration into the EU customs union. This should be smooth and total abolition of remaining custom barriers should create slightly wider space mainly for the Slovak exports into the unified EU market. In spite of certain changes in the list of countries and commodities, which should Slovakia reflect in its commercial policy, the acceptance of the common custom tariffs and preferential regimes should not significantly influence Slovak foreign trade parameters. Taking over non-tariff measures however could increase the protection of domestic market, at the same time, however increase technical requirements for exports into the EU.
There are higher chances for the positive influence of more intensive inflow of foreign direct investments. One expects here that foreign direct investments could contribute to the significant growth of technological productivity that, compared with the EU and other candidate countries, is in Slovakia on the very low level. The economic policy of the Slovak government should be here more conceptual and systematic.
Along with the increased technological productivity, one can expect the increase of comparable price level and decreased exchange rate deviation inclusive the strengthening of the nominal exchange rate. There is no risk of decreased living standard due to the increased foodstuff prices thanks to the expected nominal wage increase. Taking this into account one considers also based on the experience of Poland, Hungary and Slovenia, to release inflation rate up to the 7 per cent p. a. limit.
The migration of labour force from Slovakia into the EU could represent annually only about 1 per cent of inhabitants capable to work. That should not violate the EU labour market. On the contrary, as a result of such migration one could expect positive effect for Slovakia above all by using acquired abilities at home.
Budgetary effect should be further relevant area of the positive influence of the Slovakia’s entry into the EU. Obligatory payments and levies into the EU budget are sufficiently equalised mainly by the means Slovakia will draw from the structural funds of the EU. By project co-financing, one gets results, which often bring about also non-economic hardly quantifiable effects.
Alongside these by and large positive effects, Slovakia will be charged by the costs resulting from the acquis implementation. At the same time, not all these costs can be ascribed to the EU entry. Part of these should have been spent anyway within the framework of general transformation. Risks in this sphere lie mainly in the preparation and implementation speed of relevant [projects mainly in environmental sphere and in financial backing and its possible reflection into the foreign indebtedness. Therefore, also this area should become a priority for the economic policy inclusive the problems of the EU structural funds.
General influence of the Slovakia’s entry into the EU appears to be positive. Real economy growth compared to the current growth rates should increase to 4.8 – 5.0 per cent and at the entry option real economy growth would be at minimum by 1 per cent higher compared to the alternative of Slovakia’s later entry to the EU. At the same time Slovakia would approach nearer to the economic level of the EU, e. g. to 55.5 per cent in the year 2008 compared to its entry later.
Institutional and legal environment of Slovakia will be positively influenced by adoption and implementation of acquis, namely in the principle of protection the weaker contractual partner, protection of economic competition and smooth institutional functioning, judiciary above all. Much criticism could be raised against the EU legislation; it is however impossible to ignore the fact that this legislation is superior to ours.
In spite of some real risks and due to the undisputed positive economic, social and legislation assets of the integration, the alternative of the postponement of Slovakia’s entry into the EU until finalising real acquis implementation and considerably decreased gap in real convergence is counter-productive. This is the case not only because of the overall potential of the Slovak Republic is currently on the level which enables in a relatively short time and just with the EU help to become advanced market economy. It applies here too that each delay in chances is very hard to recover, if at all. The postponement alternative is very dangerous also because the stability of Central and Eastern Europe will always depend on the European integration prospects. It would be momentous mistake not to take part in this process.
Milota ŠUJANOVÁ – Ivan ŠUJAN
Macroeconomic position of the Slovak Republic (SR) in comparison to the European Union (EU) and/or OECD countries (or even 10 candidate countries) is not satisfactory. The Slovak economy needs recovery and serious restructuring.
Integration to the EU may bring higher inflow of foreign capital, which is necessary for substantial improvement of the Slovak economy. In the article, macroeconomic development of Slovakia is described by two alternative scenarios which have been projected up to 2008. These projections have been elaborated as some combinations of experts estimates and simulations with the econometric macromodel of the SR, developed by the authors.
The projections start from the supposed development of relevant external factors, which include, first, the world trade, inflow of foreign capital and exchange rates. Then, the major results of model projections up to 2008 are presented. They are concentrated to growth rates of GDP, labor productivity, consumption of households, gross fixed capital formation, exports, imports, inflation, nominal and real wages, etc. Also, projections of employment and unemployment, trade balance and current account are presented as well.
In the separate chapter, real and nominal convergence of the Slovak economy to the EU average is examined and projected. According to the scenario No. 2 (with assumption that the SR may join the EU by 2004) the Slovak per capita GDP in 2008 may reach 55.5 per cent of the EU average, and the comparative price level may reach 49.7 per cent.
Moreover, when we take into consideration the integration of 10 candidate countries to the EU, the new EU average will be lower by about 9 per cent against the current EU-15. Thus, in comparison to the extended EU-25 the macroeconomic position of the SR in 2008 may be somewhat better: i. e. reaching with respect to the EU-25 average about 61 per cent of per capita GDP and 52 per cent of comparative price level.
At the same time, i. e. between 2001 and 2008, the unemployment rate in the SR may be reduced from 19.2 per cent to about 15.4 per cent, and the current account deficit from 8.8 per cent of GDP to 3.2 per cent.
From the overall evaluation of our model projections it can be derived that entering the EU by 2004 would be the best alternative for Slovak economy.
Viliam PÁLENÍK – Miroslav KOTOV
Prepared entry of the Slovak Republic into the EU brings about the need to quantify the possible assets and costs of this process. The aim of the paper is this quantification by means of the CGE model. Methodology used is characterised inclusive both model structure with database used and simulated scenario.
Computable General Equilibrium (CGE) models are models, which simulate behaviour and mutual interactions of individual economic subjects in various markets. These macro-economic models are based on macro-economic assumptions of optimum behaviour of the subjects.
Database of the CGE model is the SAM-Social Accounting Matrix. One can characterise SAM in a very simplifying manner as a table describing the flows of commodities, services and money in the economy within a given period, usually during a year. CGE models are comparatively static ones. This principle is exploited to model the consequences of non-marginal exogenous shocks and policy changes in the medium-range and long-range horizon assuming ceteris paribus.
The main areas of CGE application are analyses of impacts of non-marginal changes in environmental, foreign trade and tax policies.
Database of the model applied was the Social Accounting matrix SAM, designed from the 1998 data. Three data sources were used to design SAM – National Accounts, Branch-and-Commodity Tables for the Supplies and Usage and Foreign Trade of the Slovak Republic.
Model used to estimate the impacts of the Slovak entry into the EU has a following structure:
The equations of the model were allocated into the following groups:
Slovakia’s entry into the EU was modelled by means of the following changes:
From the results of model calculations, the most important is the production development. The EU entry characterised by the described scenario will prove by its impacts differently on individual branches. The biggest increase will occur in agricultural and foodstuff production (5.8 per cent) and machines and equipment (6.6 per cent). The increase in both branches will be caused by the increase of exports resulting from the custom duty elimination. Production increase (1.9 per cent) will be observed also in the production of market services caused by the increase of domestic demand. Relatively small changes will be registered in the production of the sectors of mining and intermediate products (0.4 per cent increase) and chemical raw materials and products (decrease by 0.2 per cent). The decrease will be observed in the building production (– 2.3 per cent), electricity, gas and water supply (–7.1 per cent) and non-market services (–8.5 per cent).
The changes in foreign trade will come into being also in its scope, structure and allocation of our exports and imports. Our trade exchange with the EU countries will increase more significantly (exports generally by o 4 per cent, imports by 3.9 per cent), whereas with non-member countries there will be only slight increase (exports by 2.7 per cent and imports by o 0.8 per cent).
On the side of the generation and use of the gross domestic product the result of complex processes will result in its movement. Positive effects will prevail over the negative ones and the entry of the Slovak Republic into the EU will bring to Slovakia an additional GDP growth of 0.6 per cent.
From the GDP components on the expenditure side the biggest increase will be registered by investment demand (4.2 per cent), caused mainly by the inevitability of environmental investments. Household consumption will increase (o 2 per cent) and favourable impact will be witnessed at direct tax reduction. The consumption of the State will decrease (–8.8 per cent), when the dropout of direct taxes and cost increase of government consumption appears. Exports of goods and services will increase (3.8 per cent), and will outdo the imports increase (3.2 per cent).
Model results suggest that even if the entry of the Slovak Republic into the EU will not bring immediate enormous growth of the economy and living standards, but the gains of the process will prevail over its costs.
The competitiveness of the economy will be influenced by various contradictory influences. The elimination of our import taxes for the imports from the EU countries will decrease the competitiveness of domestic production. The inevitability of environmental investments will act unfavourably too. On the other hand, the elimination of custom tariffs for our exports will act favourably for the competitiveness of the economy. The development of the exchange rate proves too that positive effects will prevail over the negative ones, the result will be the slight appreciation or revaluation of the Slovak Crown exchange.
Michaela GAJDOŠOVÁ
The paper examines impacts of the adoption of selected segments of the Common Trade Policy of the European Union on the Slovak republic after its accession to the EU.
Initial part of the paper briefly looks at the Common Trade Policy of the EU which is based on uniform principles, particularly in regard to changes in tariff rates, the conclusion of tariff and trade agreements, the achievement of uniformity in measures of liberalization, export policy and measures to protect trade. It points out that the Common Trade Policy of the EU as a complex of tariff and non-tariff instruments belongs to those EU’ s policies in which the principle of supranational decision-making is applied and in which a great differentiation by countries or groupings of countries is apparent. Then the integral segments of the EU’ s Common Trade Policy – customs regimes are considered in more detail. The paper shows that also tariffs provide differential conditions of access for EU trading partners. While many of the EU’ s trading partners (ACP and Mediterranean countries, Central and Eastern European countries and countries of the EFTA and GSP) benefit from some or other form of preferential regime, imports from the USA, Japan, Canada, Australia, New Zealand, Korean republic, Hong Kong and Singapore enter to the EU in the m. f. n. regime (at rates of the Common Customs Tariff). An overview of the m. f. n and preferential tariffs are then shown in Tables 1 and 2. A special attention is also given to the EU’ s only non-contractual preferential regime – General System of Preferences.
Slovakia aspires to become an EU member. In this connection Slovakia will have to replace its own trade policy by the Common Trade Policy of the EU. The paper in the second part analyzes impacts of this step on Slovakia. As the set of instruments of the Common Trade Policy of the EU is very broad it is not possible to deal with all of them in one paper. Therefore, the investigation focuses only on evaluation of possible impacts generated by the adoption of the EU’ s tariffs regimes (regime based on the Common Customs Tariff and preferential regimes). The main partial conclusions from the investigation are as follows.
Regarding the introduction of the Common Customs Tariff regime of the EU, the paper notes its territorial application and tariff rates. As regards the territorial application, for Slovakia the introduction of the Common Customs Tariff will basically mean continuation of the current situation, since it will relate to the same group of countries for which Slovakia already applies conventional tariff rates. From the point of the tariff rates, the introduction of the Community Customs Tariffs will lead to a rise in certain Slovak conventional tariff rates (mainly for agriculture products), however, since this will concern only a small group of countries, with 4.3 per cent share in Slovak imports, this fact is not of great importance.
A somewhat more complex situation could arise in the field of the Slovak preferential regimes. The accession of the SR to the EU will also mean adoption of all EU’ s preferential regimes (these represent an inseparable part of the Common Trade Policy of the EU). Since their territorial scope is greater than that of the Slovak preferential regimes, their adoption will result in wider application of preferential tariffs by Slovakia than at present. In addition to CEFTA, EFTA, the Baltic countries and countries of the generalized system of preferences, to which Slovakia already provides preferential tariffs, it will have to also provide preferential tariffs to a numerous group of developing countries of African, Caribbean and Pacific region and of Mediterranean region as well. The paper shows that changes will be inevitable also in the Slovak GSP scheme which is not fully compatible with the GSP scheme of the EU. Apart from all changes which the adoption of the EU’ s preferential regimes will bring about, there is little probability that their adoption will have major impacts on mutual trade between Slovakia and the countries that the regimes cover.
Overall finding of the paper is that the Slovakia’ s accession to the European Union and related adoption of the EU’ s tariff regimes should not pose a problem to the Slovakia and should not have significant impacts on territorial and commodity structure of its foreign trade.
Peter STANEK
The harmonisation of tax environment in the Slovak Republic with that of the European Union is an important part of the Slovakia’s integration into the European Union.
The harmonising process of tax systems involves the system of direct taxes, excise taxes, as well as the changes in VAT, local taxes and local charges.
Present level of tax load under the condition of the Slovak Republic should lead towards the decrease of direct taxes (income tax of legal entities and natural persons) down to the level of 18 to 20 per cent.
In the VAT sphere, one can expect the changeover to the new range – 15 to 25 per cent with the minimum tax rate of 5 per cent.
In the area of excise taxes one can expect gradual introduction of new tax types such as for instance environmental taxes in energy sector, in transport etc.
The most significant range of changes can be expected in the sphere of local taxes and local charges, above all in considerable increase of property taxes (3 to 5 times increase compared to the cur5rent situation). One can expect also the considerable increase of further types of local taxes and local charges in order to increase markedly tax incomes of local and regional governments.
The process of approximation of the Slovak Republic towards the EU in the sphere of taxes includes two fundamental aspects:
Presented paper reflects all these processes.
Jan IŠA
The main immediate asset for Slovakia after its entry into the EU will be payments from structure funds, which will enable to solve various structure problems and acceleration of the economic growth.
The so-called pre-accession funds designed for candidate countries are forerunners of the structural funds. The first pre-accession fund was the programme PHARE, in the year 1999 the SAPARD and ISPA funds were added. The PHARE programme for the years 2000 – 2006 has two priorities – to build-up institutions and investments into infrastructure. Pre-accession strategy based on ISPA is oriented at the adaptation of candidate countries to the infrastructure standards of the EU in the sphere of transport and environment. Special pre-accession programme SAPARD should ease the transformation in agriculture. The overall scope of the pre-accession help for candidate countries in the years 2000 – 2006 will reach 21 840 mil. EUR (prices 1999). From that amount, the shares of PHARE will be 50 per cent, for ISPA 33 per cent and for SAPARD 17 per cent.
After its entry into the EU, Slovakia will take part in EU structure funds and in the Cohesion Fund. Structure funds include four independent financial tools.
European Regional Development Fund – ERDF, through which the help is granted to the regions that are lagging behind. The fund operates on the complementary principle, e. g. it is complementary source for the means of national governments to finance relevant project.
European Social Fund – ESF is oriented at regions with declining industry, at the development of human resources and at the solution of structure unemployment.
European Agricultural Guidance and Guarantee Fund – EAGGF, started to help at the implementation of the common agricultural policy.
Financial Instrument for Fisheries Guidance – FIFG.
Cohesion Fund – CF existing since the year 1993, helps to alleviate the differences in economic level within the EU framework.
Slovakia will acquire the means from these funds after its entry into the EU. Currently the Slovak Republic is sharing the means of pre-accession funds, where the overall sum of the pre-accession help for Slovakia in the years 2001 – 2004 could reach 414 – 614 million EUR (e. g. 18 – 27 billion SKK).
As for the future help from structural funds and from the Cohesion Fund, Slovak Republic could obtain in the years 2004 – 2006 about 1,79 billion EUR (e. g. 78,6 billion SK). The real amount of help will be decided by the Slovakia’s preparedness – co-financing possibilities, good projects, functioning of relevant agencies.
The matter for discussion is currently the problem of the amount of contribution the future member countries should pay into the EU budget. According to the preliminary calculations Slovak Republic should in her first membership years pay to the EU budget about 0,9 per cent of the GDP.
Vilma JURÍČKOVÁ
The entry of the Slovak Republic into the EU will be connected with relatively high costs. The essential cause, however, is not the entry alone, but the forty-year interruption of the market economy development during which period individual areas of economy were largely neglected, and even destructed.
The acceptance and implementation of acquis communateure will demand relatively large costs. The assets of EU Directives’ implementation will act in a long term, costs linked with it will concentrate into short term and medium term horizon.
Most extensive financial requirements both from the state budget and from the entrepreneurial sphere and population as well will be requested in the sphere of environment.
From the point of view of cost proportion linked with the implementation of EU standards and specifications relating to the environment complex one of the basic components is the waste management, above all communal waste storage.
The important component is also water protection. Total costs invoked by the transition to the EU standards and specifications in the sphere of waterworks and sewerage of waste waters represent the highest items within the environmental complex. The inevitability of investment expenditure to implement aquis in the sphere of water protection will invoke also some indirect effects. These will represent the development of activities of the Slovak construction companies of subcontractor type, and the creation of new jobs at the implementation of such projects.
The third important segment in the system of environmental protection is air protection. This comprises the problems of municipalities (communal waste incineration) and environmental problems in the entrepreneurial sphere.
Particularly big gaps manifest themselves in the sphere of safety at work and health preservation at work, as even currently valid legal standards has not been consistently respected. Thus, the acceptation of aquis in this sphere too will be a relatively demanding and costly process. This refers above all to the implementation of the Council Directive 89/391/EEC of 12 June 1989 on the introduction of measures to encourage improvements in the safety and health of workers at work and relative Directions. These Directives define minimum health and safety standards for concrete work situations. They relate to the requirements on workplaces, work facilities, construction sites, safety labelling as well as other requirements concerning safety at work and health protection at work.
Social-economic dimensions play an important part within the process of acquis communateure implementation. These represent above all a higher level of protection, culture and efficiency of labour and social relations.
Transposition of aquis into the Slovak legislation in the sphere of social protection means among other things also the assurance of equal rights, equal treatment in the employment and profession, as well as equal rights of all citizens irrespective of their sex, race and religion, and protection against job discrimination.
In the sphere of labour legislation, there are some problems with the Council Directive 93/104/EC of 23 November 1993 concerning certain aspects of the organization of working time. Its transposition into the new Labour Code where the maximum working hours overtime inclusive have been limited to 48 hours, has brought about other problems rather than purely cost invoking ones (in transport, post offices, in the sphere of culture).
Unlike previous spheres, where social-economic dimensions prevail, the following spheres are characterised rather by technical and economic dimension prevalence.
In the agriculture and foodstuff sector, the implementation of aquis is linked mostly with the adoption of the EU technical standards and with the finalising of institutional structures inevitable for the examination of the adherence to those standards. Timely preparation of all premises indispensable to obtain EU resources in this sector is particularly important.
Most important task in implementation of EU technical standards is the assurance of sanitary faultlessness of foodstuffs and agricultural raw materials. Additional costs will be required for ensuring environmental standards in storage facilities and waste management; this will influence increased unit costs mainly in stock raising and pig breeding.
From the point of view of Slovakia’ s entry into the EU transport has the irreplaceable task. In this chapter, Slovak Republic did not ask for any exceptions or transitional period for the implementation of aquis.
The Government approved the National Plan of Regional Development for the Slovak Republic for the years 2001 – 2006, which is the official document of the Government regarding requirements to finance transport infrastructure from the EU pre-entry funds. The development programme of transport infrastructure comprises also two priorities – construction of railway network (4 public works) and highway construction (3 public works). Basic priority of transport sector is the construction and modernisation of transport infrastructure in approved routes of multi modular corridors. Slovak Republic accepted the results of the TINA final report, which defined the survey of infrastructure projects for reconstruction, improvement or construction of infrastructure. Basic network of TINA includes corridor IV (end points Drážďany – Istanbul), corridore VI (Gdańsk – Žilina), and branch Va from Bratislava to Košice and then to Ukraine.
European Union stated that the chapter does not require further negotiation. Progress monitoring at the acceptance and implementation of aquis will go on during further negotiations.
From the point of view of the implementation of EU standards energy sector is important. Slovakia’s entry into the EU from the financial point of view relates mainly to supply safety and nuclear.
Current insufficient capacity of emergency reserves of oil and oil products and the need to extend these capacities up to the parameters defined by the EU Directive, e. g. 90 day consumption compared to the current 39 day capacity will require considerable costs spent by public finance.
Slovak commitment to phase out gradually units of a nuclear power plant V1 will not influence public finance directly, and will be financed partially from foreign resources. To support financially this phase out and eventual further related activities that could arise, a Financial Memorandum was signed between Slovakia and the EU and a special account has been opened in the European Bank for Reconstruction and Development.
In compliance with the need to meet towards the year 2004 the EU Directives 96/92 and 98/30 Slovak Republic gradually liberalises its electricity and natural gas market.
In the negotiation and implementation process, the sphere of internal safety, especially Schengen agreement, is of special importance. The main task of the Slovak Republic in this area is the protection of the Slovak-Ukraine border as an outer border of the extended EU. Increased costs to protect outer border will be, however, reflected in generally higher external and internal security of the Slovak Republic. This means the decreased number of illegal migrants, decreased custom offences, more efficient detection of illegal drug trafficking etc., which will, from the economy point of view, prepare conditions for relative future savings of the state budget.
Slovak Republic as a future member of the EU can become, however, to a greater extent compared to current situation, a country of destination for refugees and asylum applicants. As early as in the year 2003 one expects the increase of the number of refugees up to about 10 thousand people. From the economy point of view the increase of Slovakia’s internal safety resulting from the EU membership can influence positively the income from the active tourism (prospective abolition of border controls).
Slovak Republic does not need to fulfil the conditions of the Schengen aquis, and connection to the Schengen information system towards the date of EU entry, must however, fulfil the conditions defined for the first phase of the system’s application.
Ján KOŠTA – Milota ŠUJANOVÁ
The article is dealing with problems of labor market in connection with integration of Slovak Republic (SR) into the European Union (EU). Expected benefits and risks are especially analyzed in the development of employment and unemployment, wages and international mobility of labor sources. Analyses of supposed benefits and risks is extended with results of application relevant parts of the macroeconomic model.
Demand function for labor in the SR contains as a volume factor of demand the GDP in constant prices, and as a price factor real wages, e. i. price of labor. Except of this, a positive effect of foreign capital inflow and a negative effect of restructuring and substitution of labor by capital is supposed as well.
In 2008, employment should increase against the present level by about 170 – 180 thousands of persons. The unemployment in the case of entering EU should have decreasing tendency after 2004 down to the level around 15 per cent in 2008. More significant decline in unemployment is not possible with respect to growth off economic active population, which is in the SR too large and according to projections will rise between 2002 and 2008 by average annual rate of 0.52 per cent.
The development of wages will be determined by the relation of supply and demand for labor. High unemployment rate will pull the wages down. It is also not possible to assume that the wages will rise proportionally with expected growth of labor productivity.
On the other hand, it may bee supposed that expected growth in GDP and foreign capital inflow will reflected in growth of average wages and employment. According to our projections (with use of econometric mode) the real wages will rise up to 2008 against 2001 by about 33 per cent and nominal wages by 88 per cent.
The greatest problem of the free movement of labor force is the loss of qualified employees by their leave to the EU countries (a typical example is granting of “greens cards” for the computer experts in Germany). Decline in labor supply at the domestic labor market will not be, however, so remarkable to create pressure on the growth in wages and decrease significantly the unemployment rate.
Gejza BLAAS – Marian BOŽÍK
The paper is presenting preliminary outcomes of two particular segments of policy analysis work, which has been performed since a couple of years in the RIAFE (Research Institute of Agricultural and Food Economics) on the assessment of sectoral impacts of the oncoming EU accession of Slovakia: One is the price impact of accession related to farm-gate prices of the main agricultural commodities and to the food consumer prices, the second one refers to the possibly changes in the farm sector’s income after the implementation of Common Agricultural Policy (CAP). The authors have used a modelling approach. The modelling procedure is described in chapter 1 of the body.
For the current deviations in terms of prices and farm incomes between Slovakia and the EU-15 the existing policy gap between both entities is partly responsible (when neglecting the divergence in the overall economic performance). The level of producer support is in Slovakia approximately three times lower than in EU-15 – when related to production – and about five times lower, when related to agricultural area.
The Slovak support system relies predominantly on budgetary transfers. The share of market price support (MPS) has been very low during all years of transition. In 2001, MPS was less than zero. In the EU-15 the dominant support is the market price support, which is paid by consumers and as such less visible to the public. In 2001, fiscal transfers to agriculture and food amounted to 12.3 bill. SKK (USD 261 million) and made up for 4.9 per cent of state budget expenditure. The same year, in terms of OECD methodology, the support of the farm sector was in its entirety born by budget allocations.
The relatively high market price support in the EU contributes to the current price gap, which would disappear after Slovakia joining the Union.
During the recent period, prices of the Central Market Organization (CMO) crop commodities have been outstripping those in the Slovakia by approximately by 40 per cent. A similar difference may be observed in case of livestock products, with strong product-by-product deviations; e. g. the price gap has been not true for pork, but it was very significant for beef.
For crops the average price increment as an effect of accession may be expressed by index 119 and for livestock products by index 125.
Price differences on producer level are than reflected on the consumer level. According to our data (Table 7) consumer prices of some selected comparable food items have been in Germany by 50 to 100 per cent above the prices in Slovakia.
The sudden change of the price level after the adoption of CAP in Slovakia is one among the public concern related to accession.
As our price projection is showing (Table 9) only very few food items may be expected to avoid price increments. The price increase would be very different commodity-by-commodity. Consumer demand elasticities would become an important factor of this process. The capacity of consumers to accept price adjustments is than responsible for the fact, that in our projection, even after accession Slovak food prices still remain under the price level of Germany, which has been used for comparison.
The overall nominal food price index in 2005 (first year after accession date) would account for 123 over the last year before accession (2003). Nevertheless, the share of population’s expenditure on food we do not expect to soar dramatically, due to the growth of other low income elasticity costs, e. g. those for housing. We also expect, that the growth in prices will be compensated by an income rise within few years.
The sectoral income effect of EU accession has already been broadly assessed by various international studies [ 5; 19] . As the European Commission [ 10] projected, in 2007 the income gain of Slovak agriculture would represent a 50 per cent increment of gross value added above the baseline in case of implementation of CAP without direct payments. This increase would be about 150 per cent above the baseline in the case of the full CAP with direct payments implementation after accession. In our view, all previous projections overestimate the income effects of the output price change, not taking into account changes, which would obviously occur on the side of production costs.
We have examined the sectoral income effects of implementation of CAP by means of a simplified Economic Account of Agricultural (EAA) model. The simulation of implementation of the EC proposal (reduced direct payments) showed an income increase against the year 2000, but an income contraction against the most recent pre-accession year. In this model, only a reduced scale of EAAGF – Guarantee payments has been calculated (direct payments and LFA payments) and the national supplementary payments. All other EAAGF allocations from both sections (e. g. environmental payments etc.) were omitted.
This projection (Table 12) allows concluding that the implementation of CAP with reduced direct payments, if the intermediate consumption and fixed capital consumption maintain the projected level, does not necessarily lead to a higher sectoral income. The income value attained under the CAP with reduced direct payments scenario is an outcome of the simulation, in which the intermediate and fixed capital consumption volumes have been derived from their current actual values at corresponding output levels further to the Farm Accountancy Data Network (FADN) data taken from one representative EU-15 country (Germany).
The second reason for reduced income values under the CAP scenario is the change in production subsidies. This is because in the model, for the period before accession, all production subsidies provided by national policies have been calculated (irrespective of whether they comply with the definition of CAP direct payments, or not). But the CAP scenario comprises only strictly this type of payments. Consequently, even with national complementary payments, in the model the sector enjoys less product-oriented subsidies after accession.
This points to the importance of rural development and structural policy tools for the further economic sustainability of the sector after accession. This may be truth not only for Slovakia, but also for other candidate countries.
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