ANALYSIS OF TRADE RELATIONS BETWEEN POLAND AND THE EUROPEAN UNION AND THEIR IMPACT ON VOLUME AND STRUCTURE OF AGRO-FOOD ARTICLES’ TRADE

Anna Rytko
Department of Agrarian Policy and Marketing, Warsaw Agricultural University, Poland

ABSTRACT

The European Union member states are main trading partners of Poland. They accounted for over half (51.6%) of the turnover in farm and food trade in 2003. The main partners on the export side are: Germany, Netherlands, Great Britain and Italy; and on the import side are Germany, Netherlands, Spain and Italy. Trade in farm and food goods with the European Union was favourable for Poland for the first time since 1993. The trade balance in 2003 closed with a surplus of 218 mln USD. A positive trade balance also occurred in 2004. Poland has gained trade advantages in the food sector after integration with the EU.

Key words: agricultural trade, agro-food products, products’ structure, trade agreements with the European Union.

INTRODUCTION

Polish trade of agro-food goods with the European Union has been impacted by a large number of quotas, tariffs and other instruments used in trade policy. The aim of this paper is to present results of a detailed analyse of the quantity and pattern of trade in agro-goods from the transformation period through the end of 2003. Presentation of information about the volume of trade turnover of Poland with the EU and changes in trade volume related to trade instruments used in this period will allow the drawing of conclusions concerning advantages that resulted from Poland’s accession to the European Union. The integration process connected with transition from a protective trade policy to a liberal trade policy was favourable for Poland. Polish foodstuffs have found a place in the EU market. According to a definition of competitiveness, the ability of a particular country to produce and distribute goods and services in comparison with goods and services produced in other countries, the Polish agro-food economy is competitive in the market of the European Union [see: 1,2,4,5,6].

TRADE RELATIONS BETWEEN POLAND AND THE EUROPEAN UNION

The process of Poland’s integration with the European Union had an essential impact on trade and exchange with the member counties. After the break-up of the socialist countries’ union (Soviet Union), a perspective of further cooperation between Poland and Western Europe was almost sure and it initially resulted in signing contracts with the EEC and improvement of trade balances. The liberalization process for agro-food products’ trade began in 1989, but the main reduction in trade barriers took place when the Association Agreement, signed on December 16^th 1991, was validated and the European Union was obliged to ensure greater trade preferences for Poland. Asymmetry in the reduction of trade barriers lasted until 1995. Afterwards, Poland was obliged to systematic liberalization of food import restrictions from the EU countries. After validation of the European Pact, the list of preferential products was changed several times, existing contingents were enhanced, and preferential mechanisms were changed to adjust agricultural trade liberalization consistent with market realities of both sides. However, these changes did not go far enough. Cancelling or commuting instruments of trade policy, but omitting interventionism tools used within agricultural policy lead to unequal rules of competitiveness. Therefore, after more than one-year of negotiations, significant changes concerning agricultural trade were made in September 2000 which validated the January 1^st 2001 Agreement called “double zero” option. Within this agreement, import custom duties and export subsidies on non-processed agricultural products were cancelled. It enabled two-way trade of pork, poultry, milk products and wheat as well as vegetables, fruit and juices.

This incomplete liberalization did not allow completion of liberalization of agro-food trade. Enhanced scope of the Double Zero Agreement started to be obligatory from the beginning of 2003, when complete liberalization took over non-competitive foreign products. Duties and restrictions on products vulnerable to competition from imports were to be cancelled selectively [4].

Complete liberalization and mutual agricultural trade started to be obligatory on May 1^st 2004, when Poland became a legal member of the European Union. From that moment, Polish agricultural markets became part of the European common market, and Polish products were exported to the other members without any restrictions with a few exceptions in the milk, meat, fish and poultry industries. These industries have to adjust their standards to the European Union requirements.

To sum up, the most essential events which impacted the value of turnovers and balance in agro-food product trade and exchange between Poland and the European Union were as follows:

1989 – signing of an agreement concerning trade as well as economic and trade co-operation between Poland and European Communities,
1992 – validation of the Interim Agreement concerning trade co-operation,
1995 – Poland became a member of WTO; validation of agreements of GATT Uruguay Round; symmetric and mutual liberalization of agricultural trade,
2001 – the “Double Zero” Partial Agreement,
2003 – the “Double Zero” Enhanced Agreement, and
2004 – Poland became a member of the European Union.

GENERAL TENDENCIES IN TRADE IN FARM AND FOOD GOODS

Since the period of transformation in the economy, the value of turnover of farm and food goods has been increasing consistently. A rise in turnover is evident both on the side of export as well as import. In 2005 the value of farm and food export was nearly 2.5 times larger than on the threshold of political transformation whereas the value of import was almost three times higher than in 1989. A higher rate of increase in imports compared to exports resulted in a trade deficit beginning in 1992. The deficit in the trade balance of foodstuffs began to decline in 1999 and in 2003, thanks to a significant rise in exports, Poland gained a surplus of exports over imports. A rising positive trade balance supports the assertion that Polish entities are increasing activity in the European food economy.

However, the share of agro-food trade as a percent of total trade has been decreasing, see table 1. This was caused by significant increases in total foreign exchange. In 1992, the share of agro-food exports in general export was 14.5%, whereas its share of general import was – 12.2%. In 2003, the shares were 8.4% of exports and 5.9% of imports, respectively. So in 2003 compared to 1992, agro-food export and import shares of total exports and imports declined around six percent each. During the 2000-2003 period, the share of agro-food products in general foreign trade averaged 8.3% in export, and 6.4% in import.

From the beginning of the transformation, the European Union member countries have been Poland’s greatest trade partners for agro-food products. In 1989, about 61% of Polish agro-food exports were sold on EU markets, whereas 41% of imports came from the EU (table 2).

From 1989 through 2003 the trend in value of Polish exports to and imports from EU member countries has been negative. The share for both exports and imports was about 50% in 2000, and increased to 51% for exports and 52% for imports in 2003.

AGRICULTURAL TRADE WITH THE EUROPEAN UNION

Polish trade volume with the European Union, as well as with the world, has exhibited an increasing trend since 1989. However, it must be noticed, that this increase is larger for imports (more than 3.5 times) than exports (twice), Graph 3. The stronger increase in imports lead to the establishment of a negative trade balance by 1992 which continued through 2002.

Not until 2003 did the trade balance in agro-food products become positive. After 11 years of a negative trade balance with the European Union, Poland gained a surplus of 218 million USD in 2003.

Agricultural trade volume with the European Union by product type is presented on graph 4. The graph clearly indicates that the reason for a negative trade balance was the negative balances for plant and other product trade. Animal product trade after this period exhibited a surplus of export to import. Animal product trade growth was rapid after 2001 with a record rise in 2003.

By observing changes in agro-food trade volume with the EU, four periods can be distinguished (graph 2):

1. 1989–1991 – positive trade balance, caused by very low imports (they rapidly increased in 1991) and high value of exports. In this period average export value was 1.316 million USD, whereas average value of imports was only half as large at 755 million USD. The average trade balance was plus 561 million USD.

2. 1992–1995 – decrease of exports in comparison to the previous period. Average value of exports reached 1.152 million USD. Imports also increased with an average value of 1.281 million USD. This period was characterised by establishment of a trade deficit which averaged 129 million USD.

3. 1996–2002 – gradual, continuous rise in exports and a large increase in value of imports, the result was a significantly more negative trade balance which averaged 276 million USD. Note that the negative balance of trade was improving over this time period.

4. 2003 and beyond – this period has just started and its upper bound is still unknown. However, a positive balance in agro-food trade has been observed in this period. The positive balance was caused by a rapid rise in Polish exports to the European Union member countries.

PRODUCT STRUCTURE

Processed plant products dominate Polish exports to the EU market. Their volume has increased steadily since 1994, which particularly intensified in 2002 (graph 5). Furthermore, the first and the second exporting positions – processed plant and animal products – exhibited the same percentage of value of total agro-food exports to the EU at the beginning and at the end of the period. (37% – plant preserves and 21% – animal preserves). Export growth of about 200 million USD in 2003 compared to 2002 was much higher in both groups than in other product groups. Moreover, there was a decreasing trend in animals’ exported as well as stagnancy in the exports of substances.

The European Union members exported mainly preserves and plant materials to Poland. Combined, they accounted for about 55% of Polish agro-food import. Other products stated in order of import amounts were: substances, animal preserves, fish and preserves, and animals (graph 6).

Plant and substance products exhibited rising trends. Animal preserves were characterised by a falling tendency, whereas animals as well as fish and imported preserves maintained the same value level since 1994.

It should be emphasised that the product proportions in Polish food import from the EU countries changed from 1994 to 2003. There was significant growth in the percentage of plant materials imported. They comprised 13% of imports in 1994 and 26% in 2003. Moreover, a visible reduction in the proportion of animal preserves imported was noted declining from 14% in 1994 to 6% in 2003 (graphs 7a and 7b). There was also a decrease in the group of other products from 29% to 20%. Other products, shown in graph 7, maintained levels with small changes of from one to three percentage points over the research period.

CONCLUSIONS

Drawing general conclusions, it is important to note the relationship between trade liberalization and volume, pattern, and balance of trade between Poland and the European Union. The trade period studied coincides with the most important dates of recent trade cooperation between Poland and the EU. There was a large increase (and surplus) in trade after the year 1989 until the interim agreement took effect. Next, the European Agreement, established an association between Poland and the European Community members, and created guidelines for trade exchange with countries of the European Union. This lead to the creation of a free trade zone. However, it concerned only industrial goods and trade in agricultural products considered “susceptible”, and trade patterns exhibited gradual liberalization according to the rule of asymmetry on behalf of Poland as a weaker trading partner. In spite of this rule, the greatest advantages from the Interim Agreement were achieved by agricultural producers and exporters from the European Union, who as a result of the greater opening of Polish markets gained a new outlet. On the other hand, Polish farmers and traders did not gain access to the European market within the trade quotas and other instruments of trade and agricultural policy applied on a large scale.

This situation improved, when the agreement called “Double Zero” came into effect in 2003, and agricultural trade was liberalized. Next, when Poland became a full member of the EU in May 2004, competitiveness of Polish agricultural products on the European market lead to an increase in trade volume, especially on the side of exports. As a result of the accession, a new phase of economic integration was started. Through creation of a common market, which eliminates trade barriers such as customs and export subsidies, Polish farm and food goods have gained greater access to the European market.

With this information concerning trade relationship changes and analyse of trade volume in farm and food goods between Poland and the European Union, the following conclusions can be drawn.

1. Increase in trade between 1989 and 2003 was caused predominantly by a rise in exports.

2. Significant increases in export of agricultural products through 2000 and processed animal products through 2003 coincided with enactment of the trade agreement “Double zero,” a surplus trade balance in exchange of farm and food goods between Poland and the EU resulted.

3. Systematic liberalization of agricultural trade was a characteristic for the years analysed. A reduction of customs on the level of 80% was an effect of the signing of the European Agreement, but the reduction was inadequate to gain European markets. Considerable difficulties remained in the access of Polish exports to West European markets in spite of asymmetric association agreements, as other instruments of market protection, common agricultural policy, and allocation of trade preferences were used. Quota volumes were set on the basis of high exports observed in the first period distinguished from this study, (1988-1990 – the beginning of transformation), but exports quickly declined after 1992.

4. Breaking of the mutual cooperation between countries of the former socialist block precipitated an increase in interest in cooperation with countries of Western Europe, which lead to a trade balance surplus in the years 1989-1991.

5. Implementation of the trade part of the European Agreement in 1992 did not fulfil requirements necessary to further increase exports and improve the Polish trade balance. The second and third periods identified in this paper for the years 1992-2002 were characterised by a trade deficit. In spite of large scale preferences afforded by the EU, import from the EU was rising faster than Polish exports, the result was an increase in the trade deficit in the third period.

6. Significant rise in agricultural imports from the EU took place in the years 1995-2002, which was the effect of symmetrical reciprocal liberalisation from 1995, which resulted in the Polish food market being more accessible for European products. This unfavourable situation was also caused by external and internal factors such as: unfavourable climate conditions; appreciation of the zloty; and stagnation of exports which resulted from an increase in EU customs duties after the Final Act of the Uruguay Round of GATT; a slump in the economy, especially in Germany; and use of instruments of common trade and agricultural policy. This last argument strongly shows that in spite of decreases in customs, it is possible to efficiently defend access to the market with the use of such instruments as sanitary and veterinary requirements, quality standards, complicated administrative procedures, and others.

7. In the fourth period, the use of uniform or very similar trade policy that creates equal rules for both partners allowed Poland to cope with European competition and reach the European market with its products. Poland’s comparative advantage is emerging in trade with the European Union.

REFERENCES

1. Adamowicz M.: Polityka ochrony konkurencji a konkurencyjnoœć w kompleksie rolno-żywnoœciowym [Policy of competitiveness protection and competitiveness in agro-food complex] [in:] Możliwoœć poprawy konkurencyjnoœci agrobiznesu [Possibilities of agribusiness competitiveness’ improvement], AR w Lublinie, 2000 [in Polish]

2. Balassa B.: Comparative advantage, trade policy and economic development. New York University Press, 1989.

3. GUS: Rocznik statystyczny [Statistical yearbook], Warsaw 2003 [in Polish]

4. Marszałek A.: Integracja Europejska [European Integration], PWN, Warsaw 2004 [in Polish]

5. Raport: Polski handel zagraniczny artykułami rolno-spożywczymi w roku 1995; 1996; 1997; 1998; 1999; 2000; 2001; 2002; 2003, [Polish foreign agro-food products’ trade in 1995; 1996; 1997; 1998; 1999; 2000; 2001; 2002; 2003] Zespół Monitoringu Zagranicznych Rynków Rolnych FAPA (FAMMU), Warsaw [in Polish]

6. Rytko A.: Konkurencyjnoœć polskich artykułów rolno-żywnoœciowych na rynku UE [Competitiveness of Polish agro-food products on the EU market] [in:] Urban S. (ed.:) Agrobiznes 2003. Jakoœć jako podstawowy instrument konkurencyjnoœci w agrobiznesie [Agribusiness 2003. Quality as the main tool of competitiveness in agribusiness], Akademia Ekonomiczna Wrocław 2003 [in Polish]

7. Rytko A.: Handel artykułami rolno-spożywczymi przed i po akcesji Polski z Uniš Europejskš [Agro-food product trade before and after the accession of Poland to the European Union] [in:] “Zeszyty Naukowe SERiA”, Warsaw 2005 [in Polish]

Responses to this article, comments are invited and should be submitted within three months of the publication of the article. If accepted for publication, they will be published in the chapter headed 'Discussions' and hyperlinked to the article.