Presentation for Kyiv Economics Institute

1
Poland three years in EU Lessons learned
Marcin Swiecicki

• Presentation for Kyiv Economics Institute
• Economic Education and Research Consortium
• 23 May 2007

2
Some chronology

• Sept 1989 Agreement on economic and trade
  cooperation
• Dec 1991 Association (European) Agreement.
  Preamble dichotomy
• 1993 In Copenhagen EU defines accession criteria
• 1994 Application supplied
• 1998 Negotiations open
• 2002 Negotiations concluded
• 1 May 2004 accession of 10 countries

3
Preamble to Europe Agreement on Association

• In 1991 EU not ready to issue joint statement on
  future accession, but only supportive
• Recognizing the fact that the final objective
  of Poland is to become a member of the Community
  and that this association, in view of the
  Parties, will help to achieve this objective,

4
EU defines criteria in Copenhagen in 1993

• Stable democracy with the rule of law able to
  respect human and minority rights
• Competitive market economy able to interact
  within the market forces within the Union
• Ability to fully implement Community laws

5
Pre-accession anticipations

• Europe Agreement increased trustworthiness of the
  country, e.g. FDI growth from 1.7 bln in 1993 to
  10 bln USD in 2000
• Full liberalization of non-agricultural trade in
  1989-1999
• Pre-accession funds PHARE, SAPARD and ISPA as
  kindergarten for membership

6
Unfinished agenda

• Transition Periods
• For Poland
• 10 Environmental directives, sale of land to EU
  nationals, road standards, food processing
  standards, financial contributions, rates of
  exise taxes....
• For EU
• Protecting labor market for up to 7 years
• Providing EU level of agricultural subsidies only
  in 2013
• Schengen agreement on lifting border controls
  -2008?
• Euro

7
Pre-accession fears

• Rampant growth of prices
• Collapse of industry not ready to compete
• Fall of Polish agriculture
• Negative balance of budgetary flows
• Buy out of land by foreigners
• New barriers with East neighbors
• Deprivation of economic sovereignty
• Massive emigration

8
Macro results

• GDP growth. Many models but results always
  positive for both sides new and old members.
  Extra 0,1-0,2 percentage points for EU15
  countries and 0,4-1,7 for Poland
• Tremendous growth in trade, in particular
  agricultural one, where trade restrictions lifted
  only after accession
• Anticipated and post accession investment influx

9
GDP growthin percent to previous year
10
GDP growth other newmembers 2005-2006, even
better than PL
11
Export , import, balances

• High rates of export continued
• No import hikes
• Trade balance lower deficit
• Agricultural export boosts
• Net capital inflow increased
• Currency reserves increased

12
Export from Pl to EU-15 agriculture, mil euro

• Several trade barriers kept until accession
• Sale at areas close to borders increased
• Sale to third countries increased and decline
  after Russian embargo
• Producer prices increased
• Farmers revenue increased

13
Foreign direct investment

• 1998 6.4 bln US
• 1999 7.3
• 2000 9.3
• 2001 5.7
• 2002 4.1
• 2003 4.9
• 2004 12.4
• 2005 7.7
• But Estonia, Hungary, Czech Republic attracted
  2-4 time more in per capita terms

14
Unemployment rate

• Low activity rate 52, whereas 64 in EU15 and
  70 recommended by Lisbon Strategy
• Old jobs disappeared quickly, new jobs built
  slowly
• Emigration increased, but legal, workers right
  protected

15
Inflation, 12 months

• February 04 to February 03 1.6
• Highest growth 4.8 May 2004 to May 2003, then
  down
• May 2005 to May 2004 only 2.5
• On average additional growth about 2 per cent
  points, much less than forecasted by pessimists

16
Political and economic anchor

• Political freedoms and democratic institutions
  strengthened (freedom of press, demonstrations,
  political organization, etc.)
• Stability and Growth Pact ensuring
  macroeconomic convergence through controlling
  public finance debt and deficit, and inflation
• Free flow of capital protected, including access
  to land for EU nationals
• European standards enforced, whenever national
  standards left then equal for all
• Public aid for ailing enterprises restrained

17
New political leverage

• Eastern policy
• Energy security
• Trade disputes, e.g. with Russia

18
Some other consequences

• Poland launches EU antidumping procedure, e.g.
  against importation of Chinese textiles
• Polish products became Made in EU
• Polish passports became EU passports
• But visa regime reintroduced for Russia, Ukraine,
  Belarus and 12 other countries
• Increased public support for EU after accession
  from 55-60 to 75-80

19
Natural or traditional monopolies broken due to

• Telecommunication
• Railroad transport
• Air transport
• Gas distribution
• Electricity distribution

• Imported know how on introducing market forces
  into natural or traditional monopolies

20
Support for agriculture increased as the support
of farmers for EU

• Export growth
• Prices up
• New subsidies
• direct payments per hectare prevailing
• some product subsidies kept (sugar, tobacco)
• rural development
• EU rules in full only in 2013

21
Structural funds

• 16 programs for all 16 voievodships transport
  (roads, railroads, bridges airports..),
  environment, training, small business,.
• 5 national programs infrastructure (high ways,
  railroads) and environment (waste water
  treatment), human capital, innovations,

22
Budgetary transfers in euro

• 45 bilion euro earmarked for 2007-2013 for
  structural funds
• 15 bilion euro earmarked for agriculture and
  rural development
• Max ceiling for transfers for Poland in 2007-13
  perspective 4 GDP per year
• 2004 positive balance for Poland Contribution to
  EU budget 1.2 billion euro Payments for Poland
  2.8 billion euro

23
2007-2013

• Expected gross payments in 2007-13 on average
  8,5 billion euro per year, as maximum ceiling

24
Costs of integration-public and private

• Payments to the EU budget
• Enterprise costs, ¾ reported no major costs of
  adjustment
• Nevertheless estimated costs of agriculture and
  food processing adjustment 6 billion in
  1999-2004
• Environment total costs of adjustment 30
  billion euro to be borne in 1999-2013 but
  substantial part would anyhow be borne

25
Social costs of integration

• Need to differentiate
• costs of collapse of the command economy
• costs of collapse of the comecon market, in
  particular Soviet purchases of processed goods
  machinery and consumer goods
• costs of economic transformation hard realities
  of market prices, competition, etc.
• costs of integration with EU.
• COSTS of No-Integration would be greater

26
What membership in the EU is not bringing

• Privatization shipyards, mining industry, power
  supply remain state owned
• Modernization of social policy pension system,
  health care, social aid, education are left to
  national discretion
• Tax policy is only partially harmonized (VAT
  general scheme, excise taxes), which is good
• Public spending priorities transfers v.
  development
• Immigration policy

27
Pitfalls of CAP

• The greatest economic absurd in the
  developedworld The Economist
• Large farms, British Queen, French 6 families
  main beneficiaries 80 funds for 20 farms
• Overproduction and quotas for domestic production
  and restrictions on import
• Higher prices for consumers
• Even after transition, in 2013, EU 15 farmers
  will get 2-3 times more per hectare than farmers
  in newEU 12

28
Lisbon agenda 2000-2010

• Poland lags behind other members
• Activity rate Lisbon agenda 70 in 2010 EU15
  64 in 2003 and rising, Poland 56 in 2000 then
  falling to 52 in 2004, expected small growth
• Spending on RD Lisbon Agenda 3 GDP in 2010
  whereas in 2004 - EU15 around 2 Poland 0,64

29
EU15 and enlargement

• Security gains, extended sphere of stability and
  cooperation
• Enlargement of markets strengthened EU economy,
  trade quadrupled in the decade, trade surplus
  with the new members helped maintain jobs, small
  but positive impact on GDP growth
• Net costs for taxpayers in EU15 10 euro (two
  coffees) per inhabitant per year in 2004-2006
• Relocation of jobs marginal, border areas

30
Lessons learned

• Prepare no matter whether promised membership
• Harmonization of legislation, free trade
  agreement with EU, rule of law bring benefits in
  themselfs
• Benefits of economic integration by far exceed
  costs, that are generated by collapse of command
  economy