The European Union (EU) is a customs union of 27 member nations.
France, West Germany, Italy, the Netherlands, Belgium, and
Luxembourg formed the EU by signing the Treaty of Rome in 1957 to
stimulate the economic integration and recovery of Western Europe.
The United Kingdom, Ireland, and Denmark joined in 1973; Greece
joined in 1981; and Spain and Portugal in 1986. East Germany was
unified with West Germany in 1989. Austria, Finland, and Sweden
joined in 1995 to form the EU-15. Poland, Hungary, the Czech
Republic, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Cyprus,
and Malta joined in May 2004 to form the EU-25. Bulgaria and
Romania joined on January 1, 2007, bringing the total to 27 member
states. General criteria for EU membership require that a country
be governmentally democratic, geographically European, and
economically viable. A country joining the union must also adopt
the acquis communautaire, the body of laws and rules that
apply to EU members.
The EU began as a compact between sovereign nations that created
a successful customs union for industrial goods. Control of most
economic policy except for agriculture was formally retained by the
national governments. The economies of EU member nations became
more closely linked with the enactment of legislation in 1993 to
form a single market that eliminated border controls between member
states. Diverse economies, language, cultural differences, and
historical barriers have complicated economic and political
integration. Nevertheless, the EU Commission, appointed by the
member states' governments, represents the EU-27 in various
international forums such as the World Trade Organization.
The EU took a major step toward deeper economic integration in
1999 with the adoption of a single currency by 11 members (16 in
2009). The EU's monetary union integrates national economies
through a common monetary policy and a common currency, the euro. A
single currency was seen as a necessary step in creating a unified
European market to ultimately allow the free flow of capital,
goods, services, and people. The current members are Germany,
France, Italy, Belgium, Luxembourg, the Netherlands, Austria,
Ireland, Slovenia, Slovakia, Portugal, Spain, Malta, Cyprus,
Finland, and Greece.
The EU is a major political and economic force. With a
population of nearly 500 million in 2008, the EU has about 200
million more people than the United States. Population density in
the EU-27 in 2007 was nearly four times the U.S. level, at 290
inhabitants per square mile compared with 80 inhabitants per square
mile in the United States. The EU's economy, measured by Gross
Domestic Product (GDP) in purchasing power parity (PPP), which
adjusts for living standards and costs, was $14.7 trillion in 2007
compared with the U.S. figure of $13.8 trillion. In per capita
terms, U.S. GDP was $43,444 in 2007, compared with $33,482 for the
EU agricultural production is dominated by livestock products
(including dairy), grains, vegetables, wine, fruits, and sugar.
Major export commodities include grains (wheat and barley), dairy
products, poultry, pork, fruit, vegetables, olive oil, and wine.
Most agricultural imports are products not well suited to the
climate of northern Europe and include soybeans and soybean
products, cotton, tobacco, tropical products, off-season fruits and
vegetables, coffee, cocoa, tea, and spices. CAP reforms of 2003-05
have transformed the EU from a net exporter of beef and sugar to a
net importer. The EU imports large quantities of animal feed to
supplement domestically produced supplies.
The EU is the world's largest importer, and, at times, the
largest exporter of agricultural commodities in competition with
the United States. It is also the largest agriculture importer from
developing countries due to numerous trade preferences granted to
former colonies. However, these preferences are being reexamined to
conform to World Trade Organization (WTO) rules on reciprocity. The
United States is the EU's largest single trading partner.
EU farms are, on average, considerably smaller than U.S. farms.
In 2007, the average farm size in the EU-15 was 46.2 acres, whereas
the average farm size in the United States was 418 acres. The
addition of 12 new member states with smaller farm sizes than the
EU-15 makes U.S. average farm size more than 12 times that of the
average EU-27 farm of 34.1 acres. However, farm size varies greatly
by country, ranging from an average of 171 acres in the United
Kingdom to 7.2 acres in Hungary.
Responsibility for agricultural policy is centralized in the
European Commission and the Council of Agricultural Ministers,
while some discretionary power over the budget can be exercised by
the European Parliament. The
Common Agriculture Policy (CAP), the cornerstone of EU
agricultural policy, helped change the EU into a major food
exporter (although it remains the world's largest food importer).
CAP is based on three principles: common prices, common financing,
and community preference. EU agriculture has thrived under a system
of generous support to farmers. These high subsidies led EU farmers
to overproduce, building up large surpluses of grain, butter, skim
milk powder, beef, olive oil, wine, and other products. According
to estimates by the Organization for Economic Cooperation and
Development (OECD), EU-27 subsidies and other transfers from
governments of member nations accounted for 25 percent of farm
revenue in 2008, compared with 7 percent in the United States. A
series of CAP reforms in 2003-05 has led to more reliance on direct
payments to farmers rather than support through high prices.
Agricultural tariffs remain high to protect community
CAP is a large component of the EU's budget. In 2003, the EU
member governments agreed to limit increases in CAP expenditures to
1 percent annually during 2007-13. The estimated CAP budget for
2008 was 55 billion euros, with 5 billion going to market support,
37.2 billion going to direct payments to farmers, and 12.6 billion
going to rural development. In the 1980s and 1990s, market support
was the dominant mechanism in providing benefits to EU farmers.
Moreover, the 2008 CAP budget represents only 45 percent of EU
spending, compared with 70 percent in the 1980s and 1990s.
The CAP can also be a source of tension among EU member states
because the amount a country contributes to the CAP budget can
differ dramatically from the amount received in agricultural
support. For example, Germany has the largest economy in the EU and
contributes the most to the EU's budget. Since agriculture is less
than 1 percent of Germany's total GDP, Germany is helping finance
agricultural support for other EU countries, particularly France,
the largest agricultural producer in the EU.
EU commitments under the Uruguay Round
Agreement on Agriculture imposed limits on the EU's ability to
support its agricultural sector, raise barriers to imports, and
CAP reforms in 1992, 1999, 2003, 2004, and 2005 were
undertaken, in part, to adhere to WTO rules, prepare for future
negotiations on agricultural trade, and adjust to EU
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