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Costs of the Polish Integration with the Euroatlantic Structures
Pawel Wieczorek and Katarzyna Zukrowska
Copenhagen Peace Research Institute
Working Papers 11•1997
Warsaw
March 1997
The public opinion polls show that decisive majority of Poles support Polish entrance to the NATO (80%) and the European Union (66%). This support derives mainly - as can be supposed - from association of the membership in the above mentioned institutions with priviliges linked with this status, what silently is accompanied by rather low financial consequences of integration. Awareness of real financial burdens tied up with integration can be considered as one of the basic arguments in support of preparing a reliable balance of widely understood benefits and commitments which are connected with the Polish membership in NATO and the EU.
Lack of such calcultaions caused that for a long time only western evalutations of the costs were available, which were incoherent with the national realities. The utilisation of sums of several billions, which were given by the Congressional Budget Office (CBO) 1 had this advantage that it mobilised the parlamentarians and wider circles of the society to support the idea of assigning meaningful sources for the integration purposes. While from the point of view of deep analysis the mentioned calculations did not clarify the problem but achieved just the opposite, clouding the whole picture. As a result, one less informed on the matter could come to a wrong conclusion, that Poland is simply unable to face the burdens of NATO membership.
Similar situation was observed in case of the EU membership. Costs of the Polish integration with the EU were calculated by foreign experts, while in Poland only four types of costs were counted. Firstly, experts have calculated costs of the membership fee embracing the burden of transfering part of the VAT and the traditional mebership fee, consisting of share of the GNP of the country. Secondly, calculations were made showing the costs of staying outside the grouping, that is relinguishment of joining the EU, what can be reduced to limitations of rate of economic growth. Thirdly, experts have calculated the costs of integration with the EU using the same methods as the western experts, what ended with different results. Fourthly, calculations were made for Polish participation in the common agriculture policy (CAP), assuming that it will continue to run according to the contemporary conditions. Also economists have counted the costs of restructuring different sectors of the economy, although this has to be done despite Poland joins the EU or not. The point of junction in this case is the speed in which this specific goal can be achieved: faster and cheaper with integration; longer and more expensive process without integration.
The aim of this study is to show the results of available calculations and present some critical remarks and explanations. Moreover, authors propose to ascribe available financial sources for development of the economic infrastructure (communication, transportation, etc...) what will serve two purposes: (1) expansion the defense potential of the country; (2) increase abilities for self-financing of development.
1. Costs of the Polish Integration with NATO
The answer to question about integration with NATO requires taking into account necessary steps in the political, military, legal and economic spheres, which all in all form the conditions for fulfillment of the requirements formulated in the Washington Treaty. Experts agree, that the indispensable changes in the first phase of Poland joining NATO - followed by expenditures - will refer mainly to structures, procedures of action and equipment of the Defense Forces. Activities that adjust the remaining components of the National Defence System can be conducted in a further perspective, after formal accession of Poland to the Alliance.
Integration with NATO is only a small part of a wider process of transformation from the former defense system and adjustment of its separate components to contemporary and future defense requirements. Reconstruction of the National Defense System is the objective necessity and is accomplished independently from the date, when Poland becomes a NATO member. It is essential to stress that activities taken within the framework of this process are overlaping in numerous areas with the skeletal of necessary adjustments linked with the membership in the Alliance. This fact has to be taken into consideration while deducting costs of the Polish participation in NATO, which should embrace only the activities that are undertaken solely because of the future integration with the Alliance.
The process of fulfilling integration requirements by Poland can be expanded in time and divided into stages. In practice this means, that at the beginning a minimal scope of adjustments in chosen areas of the structures, procedures and equipment of the Defense Forces should be needed. Polish membership in the Alliance is not at all univocal with a need of complete replacement of the old equipment of the Polish Army by the new one produced in the West, but it only means a gradual modernisation and adjustment enabling cooperation with the equipment used in NATO.
The full balance-sheet of Poland joining NATO should include not only the costs but also some benefits that derive from integration with the Alliance. This is a complex problem, as only some of the effects of NATO enlargement can be measured, while the others, for instance security guarantees or consequences of widening the stability area in Europe, are difficult to estimate in figures.
Poland, similarily as the other countries invited to join, has to contribute to the Alliance's common budget, in its part assigned for the purposes of following sections: civil, military and infrastructure. The level of the contribution is to be defined precisely in negotiations with NATO. With a great dose of probability it could be assumed that the amount due would not exceed 2% of the NATO total budget, what in case of the financial year 1996 gives a sum of US$ 35 million.
Poland's membership in NATO, as well as the membership of other candidate countries is also linked with the necessity to increase defined expenditures on the side of NATO. Firstly, this concerns the costs of adjustments of the NATO structures to the functioning with enlarged number of members. Secondly, those costs cover the expansion of NATO infrastructure enabling transfer of specific forces to the East or eventually enforcement in the period of threat. Thirdly, the costs should embrace costs of supporting the new members in their burdens linked with the membership, that would ease the adaptation of defence systems of the new members. This aid will embrace also the adaptation of military infrastructure of the new members, which has to be adjusted for stationing of the NATO troops on their territory, if needed, in case of worsening of the climate on the international scene. All the components of Poland's costs of integration with NATO are presented on the chart (1).
Chart 1
Comparisons of the two alternative options which give guarantees of security to Poland that is the NATO membership, or development of strictly national defence system, univocally support the Atlantic option as a solution less expensive in a longer run and more effective 2 .
In practice the mentioned above security options do not form a realistic alternative, as only NATO membership gives security guarantees, what can not be offered by the potential of national defense of the country. Even a radical increase in the inputs on defense purposes (what is rather impossible in the light of economic and financial limitations) is not able to create a situation that could be compared with the conditions created by the NATO membership.
Relations of Poland with NATO are not one-sided. In case of the membership in the Alliance, Poland will take advantage of the priviliges deriving from the membership, but at the same time it will strenghten NATO politically, militarily and economically. Poland's membership in NATO will have a strategic dimension, what derives from the fact that the NATO operation inteseness will be expanded and the Alliances defense boundry will be moved by 500 kilometers to the East. Poland anxious to participate in the military structure of the Alliance, will transmit to NATO a meaningful military, economic and defencse potential. Expansion of the Alliance, with parallel development of some of its structures, will increase prospects of NATO fulfillment of its contemporary and future aims. The Alliance creates preconditions to use more rationally financial and material means that are possesed by NATO, what in longer perspective will enable lowering the security costs for all the member-states.
Also very concrete advantages are in stake here. Those advantages are linked with the fact that majority of the expenditures, which have to be covered by NATO countries will be transfered into orders placed with the industry of the Alliance-members, with all possitive consequences for the producers. The newly accepted members would creat an atractive market for military equipment and weapon systems produced in NATO countries.
1.2. Remarks to estimates prepared by experts of the Congress Budgetary Office
Metodological foundations adopted by the CBO experts cause that the whole study - according to which costs of the Polish membership in NATO together with the other three countries representing East-Central Europe
3
should fall between US$ 61-125 billion, depending on agreed formula of the membership - raise numerous reservations and doubts. Particularily it should be stressed that:
1.3. Estimations of the Polish Experts
The question about costs of Poland's participation in NATO remains unanswered. Nevertheless, some estimations prepared by group of experts which act under the auspicies of the Euro-Atlantic Association 4 , as well as by Ministry of Defence (MoD) experts, can be considered as national attempts aimed at illustrating the level of required inputs. The used methodology, generally different to the method used by the CBO calcullations, is more reliable as it is based on national conditions.
Achievement of the necessary level of compatability in the first phase of integration would require some adjustments in chosen elements of the military infrastructure, including the command system, communication and air defence, as well as logistics. Experts from the Military Foreign Affairs Department (MFAD) of the MoD estimated that costs of those adjustments counted in prices of 1994 should be closed in the sum of 4,8 billion of "old zlotys". This sum after revalorisation and denomination reaches 4,8 billion zlotys in 1997 prices or US$ 1,55 billion (according to the exchange rate of zloty to dolar at the beginning of March 1997) 5 .
Chart 2
When the planned programme of restructuring of the defence forces is spread over 15 years, than expenditures in each year will require 320 million zloty (US$ 104 million). Adding to this amount the membership fee of US$ 35 million per year, what equals with 2% of the NATO budget for 1996, we end up with the amount of US$ 2,08 billion. In per annum share this will equal with US$ 138 million, that is 4,3 per cent of the contemporary level of the MoD expenditures, which are planned in the Budgetary Regulation for 1997 (9,833 billion zloty or US$ 3,18 billion). Those means are sufficient for practical functioning of Poland in the NATO structures.
According to the inttroduced methodological foundations, the given amount does not include expenditures on long-term programme of modernisation and suplementing of the military equipment, which refer to evaluations prepared by MFAD of MoD. Those costs are estimated at 29,7 billion zloty (US$ 9,6 billion), in 1997 terms. Another problem is, that in case of staying outside NATO, numerous undertakings would not be accomplished outherwise, or they would have been started with a meaningful delay.
The assumption of a 15 year programme of Poland's adjustments to the NATO requirements can raise doubts and in such circumstances this demands some additional comments. such a long period of adapatation is well founded in case of technical programme of modernisation of the military forces but most of the adjustments steps linked with achievement of minimal level of compatability and interoperability of the Polish Army has to be accomplished by year 2000, that is in a much shorter period. This will increase the average expenditures deriving from integration from US$ 138 million to US$ 416-520 million, what equals with 13,1-16,3 per cent of the budget of MoD in 1997. Those figures have to be considered as purely statistical estimations, what means that they do not reflect expenditures in individual years. Real costs will be defined by the budgetrary policy of the MoD in the due time. It is wise to take into account the fact that different budgetary items can be moved within the structure of the budget. In practice it is also important that according to the MoD in 4-5 years it would be necessary to spend US$ 1,5-2,0 billion. The previously given estimates lead to assumtion that the higher level of costs is a more realistic one.
Costs of the Polish membership in NATO, counted by the Polish experts, who have used a more realistic formula than American experts, is considerably lower in comparison with the CBO estimates and as such do not undermine national nor NATO finances. It would be worth reminding in this context that some of the experts state that the NATO membership necessinates an increase of share of military expenditures (MoD) in the GNP to 3-4 per cent 6 . An argument formulated on this occasion, which links the level of interoperability of the military forces required for cooperation with the Alliance and is conditioned by the financial possibilities, also should be considered as a wrong one. As it was said earlier it is necessary to undertake only some adjustment measures in the chosen areas of functioning of the army. Fulfillment of those steps is possible within the contemporary financial framework of MoD, what is clearly shown in the costs estimations, prepared by MoD, as well as by the Euro-Atlantic Association.
The costs investigations of the Polish experts have been commenced at the same time as the corrected evaluations on this subject, prepared by the USA Department of Defense, which in a sence offered an alternative towards the CBO estimations. According to the estimations of the Pentagon Report achievement of the full cooperation capabilities of the new members with NATO will require a total of US$ 27-35 billion by 2009. This sum embraces three groups of expenditures: US$ 10-13 billion for modernisation of own armies by the new members of the Alliance (it could be assumed that 40 per cent of this sum concerns Poland, that is US$ 4--5,2 billion); an amount of US$ 8-10 billion of the expenditures of the Alliance members will be consumed by preparations for possible support of the new members in case of the threat; while the next US$ 9-12 billion is ascribed to costs of achivement of "full defense abilities" by an enlarged NATO. The Report assumes that the former members of the Alliance can finance up to 2/3 of the expenditures concerning development and modernisation of the infrstructure of the new members.
The Pentagon proposals embrace a wider range of adjustment activities of the National Defense Systems towards NATO membership requirements than it was assumed in the study of MFAD. Introductory analysis of the costs calculated by Americans indicates that after some corrections they can form basis for final calculations of the required spendings.
1.4. Sources of Financing Integration with NATO
The budget of MoD is and will remain the main source of financing the endavours linked with preparations of Poland to enter the NATO structures. Long-period prognoses concerning the shape of GNP as well as the state budget exclude in the nearest years the possibility of increasing expenditures for defense purposes, with MoD expenditures included. Still the share of MoD budget in the GNP will stay below the suggested by Seym 3 per cent. It is also not expected that the inputs on R&D are to be expanded, with Strategic Programmes of the Government in that number, which are financed from sources beyond the MoD budget, that is from sources ascribed to the Committee of Scientific Research (KBN).
This means in practice that sources financed from the activities linked with integration into NATO have to be found in the framework of the limits ascribed to the military purposes by annual budget legislation. Prospects for mobilisation of higher amounts for this particular purposes are limited, despite the fact that in few years meaningful savings will be achieved by such steps as:
Taking into consideration the former practice of NATO, Poland can count for defined financial and material support in order to achieve the standards of the Alliance. In particular this concerns covering part of the expenditures linked with the development and modernisation of the defence infrastructure from sources designated for Security Investment Programme (SIP). This source is mentioned also in the Study on NATO Enlargement. Inclusion of Poland to the NATO Programme of Military and Economic Aid, addressed to less developed states of the Alliance would be of importance as an additional source of financing the costs of restructuring the army. The scale of support from the side of NATO, after Poland's membership in the Alliance can not be evaluated today.
The development of cooperative military and political erangement in Europe creates conditions for realistaion of specific "peace dividend". If this dividend is measured by differences between the expenditures for state defense, which Poland had to pay if the "cold-war" arrangement was continued and the expenditures that were really carried in the period between 1986-1996 - the level of the dividend should be estimated at 69,2 billion zloty. From which 21,6 billion zloty concerns the period 1989-1996 (chart 3).
Chart 3
Chart 4
In case of the NATO countries big share of the "peace dividend" estimated for the period 1986-1995 at US$ 451,9 billion (chart 4) was released after 1989 (US$ 381,1 billion ). This means that in case of Poland the scope of dividend is shrinking gradually, while NATO countries are beginning to utilise the new and meaningsul advantages of this type. Such a situation creates real prospects to support financially and technically Poland and other candidating countries in their process of upgrading their defense systems to the NATO standards.
2. Integration Costs with the European Union (EU)
As for the present Polish experts did not estimate detailed costs of integration of Poland with the EU. Some attempts were undertaken in this sphere by the Ministry of Finances in the Department of European Integration, where experts have calculated the level of membership fee and obligations deriving from payment of part of the VAT into the EU budget. Prepared estimates are not precise as they assume continuation of the hitherto policy, which is subject to chnage. Since 1986 each member-state supplies the EEC/EU budget by 1,4 per cent of its VAT revenues, what forms 60 per cent of the organisation's budget and is considered to be the only source that was expanding in the latest years (i.e. before 1986 the share of VAT revenues laid a burden of 1 per cent on each country). The other sources were shrinking as a natural result of the foreign trade liberalisation policy and changes in common agriculture policy (CAP).
Table 1
Incomes and expenditures of the EU budget in 1994 in %
| Incomes | Expenditures | ||
|---|---|---|---|
| VAT | 54,9 | Agriculture | 53 |
| Agriculture | 3,4 | Culture & science | 1,2 |
| Custom duties | 20,1 | Administration | 5,1 |
| Direct incomes | 21,6 | R&D | 3,6 |
| Activities outside the EU | 4,7 | ||
| Structural activities | 30,7 | ||
| Others | 1,7 | ||
The total budget of the EU in 1994 was closed in 70 billion ECU. EEC/EU from the beginning tried to be selfsufficient in its expenditures. Alongside with VAT obligations - each country was supposed to supply the budget by 1,2 per cent of its total GNP. In case of Poland the calculations made for 1994 show that VAT obligations would have to support the EU by 0,2 billion zloty (US$ 0,08 billion, calculations in current prices and exchange rate zloty to dollar), while the GNP ones - would equal to 2,5 billion zloty (US% 1,04, current 1994 prices and average exchange rate of zloty to dollar). Those burdens do not exceed the Polish abilities of payment as they equal with 0,42 per cent of the budgetary expenditures. The calculations of the EU member-fee require an explanation that proportion between the GNP and VAT inputs is reversed in comparison with contemporary members of the EU. This is one of the evidence of underdevelopment of the Polish economy on the one hand, and indicates wide possibilities to change this situation on the other hand.
Despite the above calculations, Polish experts have prepared evaluation of costs of staying outside the EU. In other words they have counted costs of resignation from integration with the EU. Also costs of integration prepared by the western experts were discussed widely.
2.1. Why the Polish Costs of Integration with the EU are not Available?
Estimations of Polish integration costs with the EU are avaliable, nevertheless their usefulness is limited as they are based on the assumption that the current budgetary policy of the EU will be continued in the future (look Table 2). Lack of precise estimations of integration costs of the EU with Poland derives from the fact that EU is in the process of changes 7 .
It is difficult thus to foresee how the policies in question will be shaped at the moment when Poland becomes a member. The shape of future policies towards less developed countries is also unknown. Finally, we are not able to predict fully how the Polish economy will look, when it comes to the EU membership. In sum, we are not able to prognose the full needs nor the access to the EU financing. The issue of evaluation of integration costs is additionally complicated by the fact that Poland becomes an atractive market for the foreign direct investments (FDI). FDI are considered to be a more effective form of restructuring the economy on both macro and micro levels in comparison with the sources designated for the foreign aid. This means that with limited possibilities of absorbtion of the foreign capital, FDI can compete directly with the aid sources transfered to the national economy, what can result in crouding out the latter ones.
2.2. Components of Costs and Benefits of the Polish Integration with the EU
Discussing the problem of the membership costs of Poland in the EU - we can say that they embrace costs on the side of the Union as well as costs on the side of the new members, with Poland in that number. The costs on the Polish side embrace: costs of continuation of the reforms (reform of social insurances, medical treatment, education and continuation of privatisation), costs of restructuring of the economy, costs of expansion of the economic infrastructure, costs linked with participation in regional and subregional programmes. Not all of the listed costs will be covered by Poland on its own, part of them has to be credited by international sources from economic and financial organisations.
Not all the mentioned problems will be solved before Poland becomes a member of the EU. It is also difficult to predict how long it will take to solve those problems even beeing a EU member, what in case of structural changes of the economy seems to be the precondition for achievement of this goal. Costs of transformation of the economy embrace the process of accelerated fluctuation of capital and employment. Intensification of this process in the preliminary phases of adjustment can even result in transitional and temporary increases of unemployment. In a longer run this will enable absorbtion of part of the contemporary noted unemployment. All this means that it is not only difficult to estimate the total costs of transformation but also to calculate the costs that will be carried out in yearly terms. At the same time it is necessary to state that costs of transformation are carried out independently from the integration plans, perhaps the speed of changes is accelerated by the close perspective of integration. In such circumstances transfromation can not be considered as a direct cost linked with integration.
The costs of integration on the Polish side can thus be limited to the membership fee, which forms one of the elements of the budgetary incomes of the EU. This fee as was mentioned - equals with 1,2 per cent of GNP of each member-state. Same can be said about the VAT obligations. The two elements of the membership obligations can be covered easily from the state's budget, which only in a limited way will support the ongoing changes. Most of the foreseeable changes have to be financed from the own sources of the enterprises or in addition by external sources of commercial type (i.e. credits, financial support within the cooperation framework, etc...). The role of state, in this particular matter, should be limited to such functions as coordination, information, or representation. Enterprises on their own have limited possibilities to finance those functions.
The costs on the side of the EU will embrace costs of the reforms resulted by an increase in number of the members (changes in voting procedures, decision on number of official languages, administration and manipulation costs, etc...), costs of the reform of international policies and its new instruments, costs of new ways of supporting development in the regions which are less advanced economically. Costs include also - widely undershoot - costs of derregulation, what results also in an increased fluctuation of employment.
Benefits, which complete the calculation, embrace the growth of foreign turnover, acceleration of the FDI, development of infrastructure, increase in dynamics of the GNP, and finally - what derives from the former factors - an increase in standards of living. This are natural advanatages which in case of Poland can turn to be higher in comparison with the other CEFTAns, which lay the claim for membership. In case of Poland the future rate of the GNP growth will be defined on the one hand by possibilities of changing the structure of the economy, where shifts betwen main sectors of the economy, mainly agriculture, industry and services, can result in a jump-acceleration of the effectiveness of labour. Poland has the highest reserves in this respect in comparison with the other CEFTA partners. On the other hand, still an important role is played by the size of the internal market, what is counted as a Polish advantage in the region, despite the fact that this factor is loosing importance in the light of achieved liberalisation of trade and intesification of capital flow among countries.
An additional advantage in case of Poland can be found in the fact that until now the national economy is incorporated into the itra-branch division of labour to a very limited degree. This means a low level of satiation of the economy by cooperation ties with foreign partners in comparison with the remaining CEFTAns. Such a situation, similar to a saturated liquid, brings about bigger prospects for the future cooperation, what is especially important in case of progressing derregulation in the EU states, tied with prospects of searching optimal conditions for capital investment, employment and in turn an enhanced competitveness.
For sure, advantageous for the Polish rate of development is the fact that the country will join the EU on the stage of deep changes of this organisation. The parallel existing in changes on the two levels (national and organisation) means that Poland not only will join the EU on its contemporary stage of integration, or beeing more precise, the stage which will be updated in year 2000, but also the association period will be considered as the transitional one. Such an approach is linked with liberalisation of the Polish economic relations with the European Union, which are conditioned by the European Agreement, Polish membership in the OECD and commitments deriving from decision taken by GATT/WTO. This concerns not only the fact that since January 1996 - Poland has practically a free access to the Union's market (except some limited number of "sensitive goods") and that Union will have a full access to the Polish market in 1999 8 , but also in 1999 Polish economy will be opened for the FDI inflow (OECD arrangements).
In this context one could argue that such an opening is not able to offer much to Poland as the development differences are too deep between Poland and the EU. In other words what a country can reach by liberalisation of its turnover when it has limited number of goods which can compete in open markets? This argumentation - beeing part of the costs and benefits of integration - can be refuted by an counterargument that such a state will not last forever. Similar arguments can be used in case of limited liberalisation for sensitive exports from CEFTA market to the EU, in which goods - those countries are competitive.
Lowering the barriers for sensitive goods would lead towards an increased production surpassing both export and specialisation needs of the country. Those goods only in a limited form can serve as a source of selfinancing of structural changes, as the main stress has to be put on more advanced technologies, which in a longer run will decide about possibilities of financing the accelerated growth. Limited interest in increasing production of sensitive goods is linked with the fact that sensitive goods are commonly reckoned as declinig ones. Competition in their supplies in the region will grow in the nearest future - as can be expected - what derives from the fact that other post-communist countries are also joining the main stream of the world economy.
Remaining post-communist countries are also competitive in production of "sensitive goods" and they can serve in a limited way - but similarily as in case of Poland - as a source of selfinancing of the changes. The future prospects of Poland to compete in those fields will be rather limited, as the growth of effectiveness will be accompanied by growth of labour-costs. Same patterns will be followed by other post-communist states, which should consider declining industries as an export good in transition period. An excessive specialisation in production of such goods, which fall into the category of declining industries, would be harmful in a longer period. Production of "sensitives" would create limited prospects for capital accumulation in comparison with the leading fields based on advanced technologies. This problem gains importance especially in the context of expansion of the list of goods considered as declining ones.
On the side of the EU advantages embrace an increase in trade turnover and acceleration of restructurisation of the economy, which is subject to strong (enforced by EFTAns) derregulation impulses. This is linked with the fulfillement of the converegence criteria, which serve to assimilate economic systems of the EU member-states, in agreement with the programme of introduction of common currency, euro. It should be also taken into account that this what is considered to be a cost in a short period, brings advantages in a longer run. This remark concerns both groups of the countries: the contemporary members as well as the future ones.
As can be seen, along with the costs, new and the old members will profit. Those advantages will be higher in on the side of less developed countries, as it was proved by all new EEC/EU members which are commonly recognised as the "Poor South" (Greece, Spain, Portugal, Ireland). Economic experts expect that the coming enlargement can bring a higher dynamics of growth than it was achieved in case of membership expansion by Spain, Portugal, Greece and Ireland. This idea is supported by development results of the forthcoming changes in the EU policies, as well as in case of the changes in the economies of member-states.
2.3. Sources of Financing Integration
Sources of financing integration can be divided into internal and external or using a different criterion: into national, supplied by international organisations, supplied by other countries. Using the criterion of source of financing we can talk about budgetary means, aid sources, or credits and foreign investments. The evolution of economic policy in Poland, the EU and its member-states indicates that the main source of financing development and further systemic transformations in Poland should be ascribed to credits (foreign and national) and FDI.
The speed of introduced changes is decisive about the final level of costs of integration. High dynamics of changes not only makes the membership closer but also "immunizes" the economy to quickly intesyfying competition on the side of the remaining post-communist countries, which in a short distance will become the EU members. It is worth mentioning here that 10 post-communist countries have applied for the membership in the EU. Alongside to this three other countries are in the same queque: Malta, Cyprus and Turkey. The changes of the EU policies first of all are relating to CAP, budgetary and regional policies. In the future, introduced changes, will mean continuation of evolution of those policies in the past (i.e. reduction of CAP share in the budget) 9 and they will reflect changes ongoing in the economic policy of the member-states, which follow succesfully economic prescriptions, commonly known as "reaganomics" and "thacherism".
The departure from CAP is supported by several arguments. The list of most important argumentation covers: (1) high costs and low effectiveness of the policy; (2) higher level of food and agriculture products on EU markets in comparison with the world market prices; (3) effects of CEFTA joining the CAP and taking advanatage out of it.
Two first arguments are rather obviuos and as such do not need additional explanation, while the third reason is worth a closer look. Food and agricultural production is competitive in CEFTA countries in relation to the EU producers but under CAP this is experienced in case of limited products. Nevertheless, the competitiveness of those products would increase - in case of CEFTAns - if they are covered by CAP. In such case increase of competitiveness of agricultural products would result in an increase of agricultural production in CEFTA, what in turn would influence the level of production in the EU - limiting it. A similar effect of limited production can be achieved with smaller inputs by withdrawal from the CAP. Sooner or later such a situation will be forced over the EU countries by the GAT/WTO arrangements, which concern subsidies of the agriculture production.
At this point we come to a conclusion that costs that were presented by Western experts had to show the financial burdens in case when CAP was continued in the conditions of enlergement. Nevertheless, with limited prospects of using previously applied in the EU instruments, which stimulate the economy, international solidarity requires utilisation of new solutions.
Table 2
Estimation of the budgetary costs deriving from the Polish membership in the EU, prepared by western experts and FAPA (in billion ECU)
| Author of estimations(x) | Estimations in billion ECU | Estimations of FAPA in billion ECU (y) |
|---|---|---|
| Carchenne | n.a. | 15,6 |
| Maffe | 12,6 | 12,8 |
| Begg | 4,6 (z) | 3,4 |
| Baldwin | n.a. | 6,0 |
| Mahe | 1,6-3,1 | 2,9-5,8 |
Source: A. Kwiecinski, Structural Funds in the EU - Potential Advantages for Poland. Materials and Reports. FAPA. Section of Analysis of Economic Agricultural Policy, July 1995, p. 7.
It would be advisable that the new mechanisms put into motion in the EU are on the one hand effective, while on the other hand, are able to create financial possibilities of the EU. Inclusion of the economies of the new members into the internal market and commercialisation of the policies - can be considered as measures falling into that category. Moreover, all mentioned conditions lead towards participation in the monetary union, which completes the process of creation of the internal market.
Such a solution intensives competition enforcing changes on the level of the enterprise. This is important in many regards. The most important argument in support of such a solution is based on the fact that prospects of disinflation are limited in a protected economy, that is in contemporary conditions. The now achieved level of inflation is caused by high production costs. The second argument in support of this mechanism derives from the fact that despite advancement of the systemic reforms, economy remains strongly dependent from political decisions. This is univocal with rather high possibility of taking wrong decsisions in case of wider use of the aid money by the administration.
Table 3
Share of the EU aid within the framework of the structural policy in 2000 (in %)
| Author | Share of the aid in GNP |
|---|---|
| Begg | 2,3 |
| Baldwin | 4,1 |
| Mahe | 2,0-4,0 |
It should be stressed that in case of former EU members the share of aid in the GDP varries from 0,6 in 1989 in Italy to 4,0 in 1999 in Greece. Most of the indicators are below the level presented for Poland in Table 2. This fact reflects differences in the level of development as well as limited possibilities of absorbtion of the foreign capital.
Table 4
The Structure of Budgetary Expenditures within the Framwork of the CAP Embracing Poland (in billion ECU)
| Position | Estimated values |
|---|---|
| Export subventions | 0,56-0,8 |
| Compensation payments | 1,47-1,59 |
| Remaining costs, not included in the model | 1,11-1,3 |
| Total | 3,23-3,69 |
The assumption, introduced by the Authors of estimations, that CAP will continue in the future forces us to mention some additional costs of integration of the Polish agriculture into the EU. They embrace:
High budgetary costs of the integration and limited prospects of absorbtion of the foreign capital, both linked with differences in the level of development between Poland and the EU members, bring to following conclusions:
In sum, it seems that Poland is able to fulfill the commitments of the EU membership fees. Other costs and advantages of integration of Poland with the EU can be calcultaed precisely when the date of entrance is fixed and conditions of the entry precised. One can speculate that the future enlargements and commenced changes in the EU policies will lead towards reduction of the development aid, which will be replaced by more commercial forms of support.
3. CONCLUSIONS
1. Estimations of real costs of the Polish entry into the NATO and EU will be possible, both for short and long period, when concrete date's of entries will be fixed and the conditions of membership precised. This would enable to form an optimal option of integration - looking at this issue from the angle of needs as well as economic and financial conditions. This in turn would make possible the designing of a rational way of achieveing the standards required both for the NATO and the EU. Each option of such a way will be tied with different costs, which would be dependent on the speed and scale of integration activities and the choice of area from which the process of integration with the Euroatlantic structures will begun. This will also help to define the degree of financial mobilisation from the budget as well as other sources.
2. Studies on economic and financial aspects of integration of Poland with NATO and the EU have to be continued in a much wider way than it was done untill now. Especially it is important to work out a balance of financial and economic costs and advanatages deriving from Polish membership in the Alliance and the Union.
3. The entrance of Poland into NATO and the EU is tied-up with meaningful financial costs, which have to be carried out especially by the new members on their own, Poland being no exception out of this rule. The inputs in question can be preceded gradually, what can be spread over years, when economic possibilities of the country are taken into account. It is important to link the standards of reaching full compatability with the Alliance with the financial realities of the country. The ability to compromise between the needs of integration with real economic possibilities of the country have to be considered as one of the main elements that formulates evaluation of the Polish credibility as the future member of the EU and NATO.
4. Participation of Poland in different types of irreclaimable aid programmes should be rather limited in both cases integration with NATO and EU. This conclusion derives from limited effectiveness of such investments in comparison with repaid aid or most effective foreign direct inflow of capital (FDI).
5. Investments in the infrastructure can be considered as the best allocation of foreign resources in case of prospects of integration with NATO and EU. Such a decision - if undertaken - finds support in numerous arguments of different nature:
Note 1: The Costs of Expanding NATO Alliance, Congressional Budget Office (CBO), March 1996. Back.
Note 2: This thesis finds support in the fact that average military expenditures per one citizen in the European part of NATO are usually lower than similar expenditures in Sweden or Switzerland. For instance in 1995 the mentioned countries assigned for military purposes in per capita terms respectedly US$ 687 and US$ 720, while in the same year the average per capita expenditures in the European part of NATO amounted to US$ 440, or US$ 432 if we exclude the nuclear states. Back.
Note 3: Czech Republic, Hungary, Poland and Slovakia most often are referred as Wisehrad countries or Wisehrad Triangle - what is a mistake as Wisehrad (February 1992) was a group of countries which have launched CEFTA (Central European Free Trade Agreement) in December 1992 and this practically has ended its mandate, as no other political coordination of those countries has taken place since than. Back.
Note 4: The Estimations of Costs of NATO Enlergement - participation in the discussion (edited by M. Kozlowski and D. Wisniewski), multiplied mannuscript, prepared under the auspicies of Euro-Atlantic Association, January 1997, (English version in preparation). Back.
Note 5: W. Idczak, Z. Karolczyk, J. Kurek, Military Aspects of Integration of the Polish Arms Forces with the Western Defense System, MFAD MoD, November 1994 (in Polish). Back.
Note 6: Look E. Firlej, On the Way to NATO - Costs of Integration. Financial Conditions of the Process, Department of Studies and programming, Ministry of Foreign Affairs, p. 16, and E. Firlej, Financing the Defense Needs of Poland in the Light of Integration with NATO, Army and Education, 1996, No 11 p. 100. Back.
Note 7: At the latest Summit in Dublin in 1996, it was decided that until 1999 the rate of growth of the EU budget will equal 0 per cent in yearly terms (Major-Santer Pacage). This reflects indirectly that the EU is withdrawing slowly from its intervention policies. It could be assumed that this process has to be accelerated after admittion of the new members. Back.
Note 8: With cars beeing exception of that rule. Back.
Note 9: In the 1970's CAP consumed over 90 per cent of the EEC budgetary means, while in the middle of the 1990's this share in EU was reduced to 52 per cent. Back.
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