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Università di Siena

European Consumer PolicyEuropean Consumer Policy  Secondo Tarditi

www.unisi.it/aepwww.unisi.it/cpc

www.unisi.it/cipas

Facoltà di Economia – Dipartimento di Economia PoliticaCentro Interuniversitario di Politica Agro-alimentare-ambientale (CIPAS)

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010 Organizzazione del corso

Facoltà di Economia: Politica Europea dei ConsumatoriOrario lezioni: esercitazioni

–Lunedì 18:00 - 20:00–Martedì 10:00 - 12:00 14:00 - 16:00–Mercoledì 10:00 - 12:00

•Prova di metà semestre: metà novembre–Se accettato, il voto fa media con quello dell’esame finale

•Relazione scritta su ricerca (opzionale)–Utilizzazione di Microsoft Office (Word, Excel, Powerpoint)–Presentata e discussa durante le esercitazioni–Il voto può far media con quello dell’esame finale

•Esame finale: scritto con verifica orale–Il voto può essere mediato con il voto riportato nella prova di metà semestre e/o con quello riportato nella relazione, a giudizio del candidato

•Ricevimento: Martedi 12:00 - 14:00, o per appuntamento, tel. 0577232631

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010b Introduction•Official EU languages: English, French, German (all official documents and most research papers are available in English) In EU internet sites available translations are accessible by choosing the appropriate language in the top right side of the web page.•Approach, could be

–mainly descriptive (historical, institutional), or mainly analytical:•mainly positive (more scientific?) or normative (political?), •more descriptive or quantitatively oriented

•We will preferably follow an analytical, normative approach, based on welfare economics, quantitative when possible.

– a) Objectives of the Economic Policy will be identified (on grounds of evidence, general consensus, statements in the Treaties)– b) Existing (or planned) economic policies will be described– c) The present (or resulting) status of EU economy will be matched with objectives– d) Appraisal on EU policies will be drawn, based on the attainment of objectives– e) Consequent recommendations will be formulated

•Internet references widely used•Clarification or critical questions are welcome•Intermediate mid-semester test and final test are optional

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020 CONSUMER POLICY

• Article 153 of the Treaty establishing the EC•1. In order to promote the interests of consumers and to ensure a high level of consumer protection, the Community shall contribute to protecting the health, safety and economic interests of consumers, as well as to promoting their right to information, education and to organise themselves in order to safeguard their interests. •2. Consumer protection requirements shall be taken into account in defining and implementing other Community policies and activities. •3. The Community shall contribute to the attainment of the objectives referred to in paragraph 1 through …... measures which support, supplement and monitor the policy pursued by the Member States.

–According to the Treaty Establishing the EU, consumer economic interests should be protected and national policies should be monitored.–Consumer Policy becomes co-responsible of the waste of economic resources involved by present CAP

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030 HORIZONTA CONSISTENCY

•Criteria for appraising sector policies:•Transparency (Research, information policies)•Efficiency (Internal market, competition policies)•Stability (Macroeconomic, monetary policies)•Equity (Fiscal, cohesion policies)•Sustainability (Environmental policy)•Safety (Health policy)•Security (Defence, social security policies)•Consistency (among EU policies)

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040 VERTICAL CONSISTENY

•International (UN, WTO, OECD, IMF)•European Union (Community)•National (Italian)•Regional (Tuscany)•Local - Province, Municipality (Siena)

–(Interactions between domestic and supranational arenas)

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050 EXTERNAL EFFECTS

•Geographic areas where EU policy may impact:•European Union (EU-15)•Central and Eastern European Countries (CEECs)•Mediterranean countries•Less developed countries (LDCs)•Developed countries (DCs)

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060 Planned work

•0 Introduction•1 Consumer policy in the EU

•Motivations; Developments; Present policy•2 Monitoring EU policies

•Objectives; Social welfare; Actual monitoring•3 The EU budget

•Developments; “Comprehensive” budget; Programmes•4 Agricultural policy

•Developments; Policy analysis; Perspectives; Strategies•5 Structural policies

•Developments; Policy analysis; Perspectives; Strategies•6 Other domestic policies

•Developments; Policy analysis; Perspectives; Strategies•7 External Action

•Developments; Policy analysis; Perspectives; Strategies•8 Perspectives and strategies

•Perspectives; Strategies; Likely impact•9 Appendices

•Reminders: Price policy; Social cost-benefit analysis

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100 CONSUMER POLICY IN THE EU

•110 Motivations •120 Developments •130 Present policy

References:

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110 Motivations

–Definition of “consumer”»In economic theory: Consumer = rational utility-maximiser (egoistic)»Citizen-consumer not egoistic, but social welfare maximiser

•22Market Failures•Government Failures

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111 Market failures

•Market Failures»In a perfectly competitive market without externalities and public goods, economic (consumer) policy would be necessary mainly in order to redistribute income

–Market imperfections»Non-competititve markets»Monopolies oligopolies etc. (e.g. European airlines, railways, cellular telephones)

–Externalities»(spill-over effects), occur when people impose costs (or benefits) on others without paying the proper cost (or receiving the proper payment) (e.g. water pollution, food pollution)»Positive (e.g. landscape improvement)»Negative (e.g. water, air, soil pollution)

–Public goods (e.g. public security, safety)»indivisible external consumption effects on more than one individual (e.g. landscape degradation, public health, food security)»Information failure: incomplete or/and distorted

–Unfair income distribution»Not related to contribution to production»Not related to individual and social needs

•Need for collective action, government

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112 Government failures

If goverments were performing at best (i.e. were always attaining efficient, equitable and sustainable policies), offsetting market failures, Consumer policy would not be needed. Government failures: - Bad performance in offsetting market failures - Direct creation of inefficient, inequitable, non sustainable policies, preventing a higher welfare of citizens•Resource allocation, e.g. policies generating:

• Distorted prices• Production quotas• Land set aside

•Income distribution, e.g. policies generating:• Rents on land• Rents on production rights (quotas)

•Sustainable development, e.g. policies damaging environment• Natural environment (e.g. water, soil , air pollution)• Social environment (e.g. fraud consequent to bureaucratisation)

• Safety, security, e.g. failure in providing appropriate public goods

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112-a1 Why government failures: lobbies

•Pressure groups are organised groups of citizens (e.g. producers) attaining better their interests by influencing the policy-making decisional process.

»Lobby organisations have increased spectacularly in the EU, from 167 in 1960 to 3500 in 1995, in the early 35 years of EU

•As a general ranking, the action of pressure groups may be:•Fully legitimate (fair) i.e. consistent with the stated objectives of the government (maximization of social welfare) (e.g. improving information and providing technical support to policy makers)•Detrimental to social welfare (unfair) if their action generates benefits for their particular group of citizens lower than the benefits accruing to society as a whole. In other words if, the resulting policy measures benefit some citizens but the rest of society bears an unjustufiable much larger cost.•Countervailing “horizontal”, i.e. action of pressure groups aiming at “general”, not at “particular” welfare improvements in policy-making. •It could at least partially offset the detrimental impact of unfair pressure groups claiming unwarranted benefits for their member in the policy-making process.

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112-a2

–The Commission is open to outside inputs, it aims at an open and structured dialogue with interest groups. A policy on openness so as to encourage a real public debate on its activities–Joint code of conduct adopted by Council and Commission providing for the widest possible access to internal documents–Development of active and citizen-friendly information policy and increased participation by special interest groups in the preparation of Commission decision and legislative proposals–The Commission is frequently contacted by the representatives of special interest groups. These groups can be divided into non-profit making organizations (European and (inter)national associations/federations) and profit making organizations (legal advisers, public relations and public affairs firms, and consultants).

»http://europa.eu.int/comm/sg/sgc/lobbies/en/communication/groupint_en.htm

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112-a3

»At present there are thought to be approximately 3 000 special interest groups of varying types in Brussels, with up to 10 000 employees working in the lobbying sector.

»Within this total there are more than 500 European and international federations In addition, there are 50 offices in Brussels representing Länder, regional and local authorities (some of which may of course participate in the institutional framework of the Community and it is only their other activities which are concerned by this communication).

»There are more than 200 individual firms with direct representation, and about 100 consultants (management, and public relations) with offices in Brussels and many others dealing with Community affairs. There are 100 law firms in Belgium specializing in Community law and many more in other countries (both Member States and beyond).

»http://europa.eu.int/comm/sg/sgc/lobbies/en/communication/groupint_en.htm

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112-a4

•In other industrial sectors:– protection of the EU domestic market is much lower,– government intervention is lower, –competition is more widespread and effective, –as a consequence consumer interests are more safeguarded

•In the agricultural sector:•farm lobbies do not face a countervailing power in institutions where policy decisions are taken•farm lobbies approach to farm policy: while looking for benefits to farmers, does not take into sufficient consideration the related cost for consumers and society as a whole of various policy measures•the present distorted CAP, transferring to agriculture about 50% of the Agricultural Value Added, provides privileges and financial sources for better organising farm lobbies, oceanic demonstrations in Brussels, pressure on mass-media and policymakers, in order to prevent change and reforms.

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112-b Why government failures: policymakers

•Policy makers and administrators:– Sometimes do not care of social welfare in practice as much as they claim to

do when making public statements– Sometimes have difficulty in perceiving the hidden economic or social costs

of special policy measures– Sometimes the risk of loosing a policy battle on farm policy is too high,

given the strength and good organisation of farm lobbies and the large administrative network involved in the CAP at regional, national and EU level

– Sometimes the personal cost and commitment to engage in such a risky adventure is just too high as compared to the expected results

– Sometimes the easiest way of living for policy makers and administrators is just to operate compromises between the strongest lobbies dealing with specific issues (farm lobbies, processors, input producers, large retailers, etc. )

– Sometimes conflicts of interests exist when policy makers or administrators are personally involved in managing farms or farmers organisations, or are largely dependent on farm organisations for their re-election or career

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04c Why government failures: NGOs

• Consumer organisations deal mainly with the security and safety aspects of the CAP.

• The impact of CAP on consumer economic interests has rarely been a key issue for consumer organisations

• Recently (8-12-98) the Consumer Committee of the EU Commission adopted an opinion on the reform of the CAP, internet site http://europa.eu.int/comm/dg24/policy/committee/cc06_en.html

• Need of a countervailing power facing sector (farm in our case) lobbies in order to defend the interest of society as a whole

• Responsibility for government failures in the CAP are shared between:–farm lobbies manipulating policies beyond the limits of an equitable and legitimate defence of sector interests–NGOs and consumer organisations not defending consumer economic interests on mass-media and at all policy decision-making levels

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120 Developments

–Early developments–The Santer Commission (1995-1999)–The Prodi Commission (2000-2004)

•References–Bonino E. (1998)  Quale politica per i consumatori?, Diritti e Mercato, ETAS, Milano. (file .doc) –EU Commission (1999) Consumer Policy Action Plan 1999-2001–EU Commission (2002) Consumer Policy Strategy 2002-2006–EU Commission (2003) Review of Consumer Policy Strategy 2002-2006–EU Commission (2005) Consumer Policy Strategy: impact assessment

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121-a Early developments

–Consumers are mentioned only three times in the Treaty of Rome: twice concerning the Common Agricultural Policy (CAP) and once dealing with the competition policy.[1]

»[1] (1) article 39, n.1, e - an objective of the Common Agricultural Policy was “to ensure supplies to consumers at reasonable prices”; (2) article 40, n.3 - in which the common organisation of agricultural markets “shall exclude any discrimination between producers or consumers within the Community”; (3) article 86, b - prohibiting “such improper practices [as] ... (b) the limitation of production, markets or technical development to the prejudice of consumers”.

–Sicco Mansholt, commissioner for agriculture, convened first in 1961 the representatives of consumers' organisations in order to discuss some features of the Common Agricultural Policy –1968 a 'Unit for consumer protection' was established at the Directorate General for Competition. Consumer interests were directly associated with the dismantling of imperfections and monopolistic rents in the internal market –1981 a 'Service for consumer policy' was established at the Directorate General for Environmental Protection, stressing the importance of the non-economic components of social welfare such as safety, health protection and environmental externalities

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121-b Seventies and Eighties

–A 'Consumer Consultative Committee' including representatives of consumer organisations was instituted in 1973 and in 1975 the 'First Programme for a Consumer Protection and Information Policy' was adopted, followed by a Second Consumer Programme in 1981.–With the Single European Act in 1987, consumer protection became an official objective of the EU as stated in article 3 –In 1988 the 'Consumer Policy Service' became independent from specific Directorates General, and a first 'Three-years Action Plan for Consumer Policy in the EEC (1990-92)' was approved in 1990, followed by a 'Second Commission Three-years Action Plan (1993-95)' –The coincidence of general interests with consumer interests is mentioned in the introduction of the First Action Plan: "it is important to pay attention to consumer interests not only for their own sakes, but also for the benefits of producers, distributors and enterprise in general" "Consumer interests should also be reflected in the establishment of other Community policies (i.e. environment, industrial, agriculture, transport and social policy)." –The European Union officially established a specific and independent policy for consumers in the Maastricht treaty of 1993. The Maastricht Treaty included a new title for consumer protection (i.e. title XI)–Four main areas of consumer policy are identified: information, representation, security, and transactions in the market, later qualified as 'protection of consumer economic interests'.

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Il primo ‘Piano di Azione’ (1990-92)

–Interesse dei consumatori coincide con l’ interesse generale

•Rappresentanza dei consumatori•Informazione dei consumatori•Sicurezza dei consumatori

•Sicurezza dei prodotti•Responabilità civile per danni•Certificazione dei prodotti•Sorveglianza

•Transazioni commerciali (Politica economica)•Maggiore potere contrattuale dei consumatori nei confronti dei produttori e intermediari•Maggiore concorrenza nel mercato unico•Omogenoeizzazione delle normative nazionali nel contesto del mercato unico

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Il secondo ‘Piano di Azione’ (1993-95)

•Trattato di Maastricht (7-2-92) art. 129a: “Tutelare la salute, la sicurezza e gli interessi economici di consumatori e garantire loro una idonea informazione”

–Priorità: •informazione dei consumatori•migliorare la concertazione (specialmente in Irlanda e nei Paesi mediterranei)

–Tutela degli interessi dei consumatori in tutte le politiche comunitarie–Stanziamento di bilancio 16 mn ECU (PAC 40 bn Ecu) 0,5 per mille

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122-a Santer Commission (1995-1999)

–the institution of the Consumer Policy Directorate General in 1995 and the following ratification of the Amsterdam treaty of 1997 –The main achievement was the creation of the Consumer Policy Directorate General, DGXXIV, whose tasks were:

»“A) Propose and monitor legislation to protect the consumer in the internal market;»B) Reinforce market transparency;»D) Improve consumer confidence, especially by more complete and effective information »From 1997 it became the Directorate General for Consumer Policy and Consumer Health Protection.

–The mission of the DG24 was to “develop a consumer policy and contribute to consumer health protection and food safety at the level of the European Union”. It thus highlights its internal split between consumer policy and consumer protection, where the former relates to actions towards the workings of the market and towards supporting consumer interests within other EU policies.–The Amsterdam Treaty signed in 1997 enhanced the legal status of consumers. In Article 129A consumer protection becomes an independent objective of the EU, which shall support and supplement the policies implemented by Member States, according to the principle of subsidiarity.

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122-b DG XXIV

– The mission of DG XXIV "Consumer Policy and consumer health protection" is to:

»Develop a consumer policy and contribute to consumer health protection and food safety at the level of the European Union;

– 1. Consumer Policy» propose and monitor legislation to protect the consumer in the internal market ; » reinforce market transparency ; » improve consumer confidence, especially by more complete and effective information and education ; » ensure that the interests of consumers are given due consideration in the development of other European Union policies.

– 2. Consumer Health Protection» manage the European scientific committees concerned with consumer health whose work is based on the principles:» evaluate and assess possible risks to consumer health in a forward looking way » contribute to the safety of consumer products and services in the European Union. Http://europa.eu.int/comm/dg24/general_info/mission_en.html

–In the last paragraphs of the Action plan 1999-2001:»The Commission will seek to integrate consumer concerns into the Agenda 2000 reform of the Common Agricultural Policy. To pursue this, the Commission will examine the impact of the CAP on consumer’s economic interests, notably price, choice and access to essential foods at reasonable prices.

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123 The Prodi Commission (2000-2005)

•2002 Consumer policy strategy (2002-2006)–Three key objectives–"A high common level of consumer protection".

–This means harmonising, by the most appropriate means (e.g. framework directive, standards, best practices), not just the safety of goods and services, but also those economic and legal interests that will enable consumers to shop with confidence anywhere in the EU and by whatever means.

•"Effective enforcement of consumer protection rules". –There is no good law if it is not properly enforced. In practice, consumers should be given the same protection throughout the EU, and also in an enlarged EU.

•"Proper involvement of consumer organisations in EU policies". –For consumer protection policies to be effective, consumers themselves must have an opportunity to contribute to the development of policies that affect them. Consumers and their representatives should have the capacity and resources to promote their interests on a similar footing as other stakeholders. –The main actions consist of a review of mechanisms for consumer organisations to participate actively in EU policy making and to the setting up of education and capacity-building projects.

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123-a Policy integration (monitoring?)

•Horizontal integration–As well as specific consumer protection rules, consumers are also affected by other important EU policies such as the internal market, environment and sustainable development, transport, financial services, competition, agriculture, external trade and more. Consumer policy as such cannot be developed in isolation without taking into account other areas that have an impact on consumers. Systematic integration of consumer concerns into all relevant EU policy areas is essential.

•Vertical integration–Consumer policy is an area where the EU can add value. It is a shared responsibility between the EU and national public authorities. EU rules are enforced at the national level. Integration of consumer interests into all policies can only be effective if there is a similar approach at national level. This means that consumer policy is a collective endeavour of all European Union policy sectors and at all levels, regional, national and European.

•[monitoring? Missed]

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130 Present policy

• 131 Ten principles• 132 Strategy Programme: Health and Consumer Protection2007-13•133 Basic principles•134 Information•135 Representation•136 Safety and security•137 Economic interests•138 Perspectives•139 Strategies

•References:–EU Commission (2005) Consumer Protection: 10 principles, DG SANCO–EU Commission (2005) Health and Consumer Programme 2007-13–Parlamento e Consiglio UE (2005) Programma Sanità e Consumatori 2007-13–EU Commission (2005) Strategy Programme: Impact assessment

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130-a SANCO Organigramme

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130-b Priorities

–Building on solid foundations, three main strategic priorities appear to be central for the new Commission:

»Better health and health outcomes (beat back obesity, tobacco use and alcohol-related harm, reduce HIV/AIDS, maximise health benefits of other policies (environment, social policy, internal market), strengthen defences against emerging diseases and malicious pathogen releases, deal with anti-microbial resistance, improve safety and quality of health services); particular emphasis should be given to prevention, as well as to protecting Europe’s youth from such threats; »Empower consumers to feel more confident in the enlarged single market by strengthening consumer networks, raising awareness and rigorous oversight of transposition, and enforcement of existing legislation and prosecution of infringements; »Maintain high levels of food safety at manageable cost, by ensuring effective implementation of the legislation within the EU and help raise health and food standards and practices in third countries. »Source: SANCO

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131 Ten principles

•Commissioner Markos Kyprianou •Three policy areas: Food safety, Public health, Consumer protection•Focus on consumer protection and on market failures. Reduced attention on government failures•10 basic principles (.pdf)

–1. Buy what you want, where you want –2. If it doesn’t work, send it back –3. High safety standards for food and other consumer goods –4. Know what you are eating –5. Contracts should be fair to consumers –6. Sometimes consumers can change their mind –7. Making it easier to compare prices –8. Consumer should not be misled –9. Protection while you are on holiday –10. Effective redress for cross-border disputes

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132 Strategy programme

–EU Commission (2005) Consumer Policy Strategy: impact assessment–EU Commission (2003) Review of Consumer Policy Strategy 2002-2006

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132a Impact assessment

–EU Commission (2003) Review of Consumer Policy Strategy 2002-2006

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L’attuale politica dei consumatori

–Carenza di ‘informazione’ completa e corretta–Contenuto tecnico della politica agroalimentare; scarso interesse dei consumatori, fonti parziali

–Carenza di una ‘rappresentanza’ equilibrata–Questioni agricole trattate da ‘rappresentanti agricoli’ nelle sedi istituzionali, enorme squilibrio di potere contrattuale fra produttori e consumatori

–Carenza di tutela degli ‘interessi economici’ dei consumatori–Trasferimenti annui pro-capite di 315 Ecu pro-capite, 14960 Ecu per addetto agricolo, 996 Ecu per ha.

•Obiettivi•Rafforzamento rappresentanza dei consumatori, identificazione di una coerente strategia di politica economica, completamento della riforma del 1992 nel contesto degli accordi WTO

–Informazione–Rappresentanza–Politica di sicurezza–Politica economia

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133 Basic principles

•Information•Representation•Safety and security•Economic interests

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134 Information

–Undistorted information is a fundamental need for the good social and political functioning of a country. If the conception of reality is distorted the door is open to injustice and endemic quarrelsomeness between social groups. –According to a well-known saying, 'truth is the first victim of wars'. When relationships, even between social groups, worsen, everyone tends to interpret facts in a more self-centred, biased way, reducing the possibility of reaching a quick and pacific compromise between diverging points of view.–Consumers end up with having to pay for the bad functioning of the market and of public administration –E.g. The cost for consumers due to the increased market prices of farm products is totally ignored by the Commission, although, according to OECD estimates, such a burden is larger than the burden on taxpayers. How could the Council of EU Agricultural Ministers evaluate correctly the impact of their decisions on farm prices if 60% of the cost of price support burdening households is just overlooked? –Such distorted information is also diffused in various brochuresprepared for the general public stating that the cost of the CAP is ECU 100 per citizen per year, € 2 per week, without quoting any statistical source. OECD publishes annually a large analytical study, detailed for all OECD countries and for most agricultural commodities, where agricultural policies in the EU are estimated to cost ECU 315 per capita. This amounts to a transfer of ECU 14960 per full time farmer equivalent and ECU 762 per hectare of agricultural land. These more documented figures would communicate a rather different message to the reader.–Budgetary costs vs. economic costs

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‘Informazione’ completa e corretta

•Dimensione ‘microeconomica’•Informazione sulle caratteristiche (merceologiche, sanitarie, giuridiche, ecc.) dei beni e servizi acquistabili sul mercato europeo e sulle eventuali esternalità per aumentare le capacità di scenta dei consumatori

•Dimensione ‘politica’ •Informazione completa e corretta sui provvedimenti di politica economica (specialmente settoriale) esistenti e sui loro effetti. Informazione preventiva sulle proposte di legge in modo da favorire le scelte pubbliche più coerenti con l’interesse generale.

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135 Representation

–Individual consumers are systematically at a disadvantage in terms of bargaining power with respect to goods and services suppliers. Rarely can a consumer stand the financial burden necessary to promote a court case to protect his rights against a car manufacturer, for example, or against a multinational insurance company –When decisions are taken concerning administered prices, implying income transfers from consumers to producers for example, horizontal organisations should be represented in the same proportion as their counterpart, whose economic interests are opposite. At present producers lobbies are usually much better represented and much more effective in supporting their issues. Consumer representatives are usually under-represented and often cannot be as good as producer representatives in dealing with specific topics. The staff of consumer organisations is very limited compared with that of producer organisations and obviously their policy analysts cannot be as well documented on specific technical issues.

» Compare, for example, the staff of the BEUC (about thirty people) , representing consumer organisations dealing with all issues, with the staff of COPA and COGECA (over three hundred people) representing farm organisations and cooperatives, dealing only with farm policy problems.

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‘Rappresentanza’ dei consumatori

•Dimensione ‘microeconomica’–Difesa degli interessi dei singoli cittadini di fronte alle imprese e allo stato. Potenziamento del lavoro svolto dalle organizzaioni dei consumatori e dei cittadini in generale

•Rappresentanza nel processo decisionale pubblico–Aumentare e migliorare la rappresentanza con l’obiettivo di renderla proporzionale agli interessi economici in discussione nelle misure di politica settoriale dove si contrappongono produttori e consumatori

•Coordinamento dei rappresentanti di interessi sociali affini–Necessario un maggiore coordinamento delle varie e non omogenee organizzazioni dei consumatori e collegamento con altri rappresentanti (ad es. industria alimentare, ambientalisti, ecc.) con interessi affini di carattere generale e sociale.

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136 Safety and security

–The basic motivation that guided Community legislation in the field of non-economic issues such as consumer health and security is the improvement of the quality of life. Consequently action is taken to promote consumer health and safety, protecting citizens from buying and consuming defective or harmful goods. The same approach is used for services that do not fully guarantee consumer safety.–At present most of the financial and human resources involved in consumer policy are spent on heath and safety issues. –in the field of preventive legislation, the directive 92/59 on general product safety and the related Rapid Exchange System (REIS), are characterised by a horizontal approach. They go beyond the existing specific regulations for various products and establish new general principles in the field of the liability of supply of services. Consequently they are not only a reference point for legislation on product security, but also a model for future initiatives in other fields.

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‘Sicurezza’ dei consumatori

–Garantire sicurezza e qualità dei prodotti alimentari–Perseguire frodi di ogni tipo, merceologiche, sanitarie, finanziarie

–Informazione ed etichettatura–Etichettatura adeguata anche per i prodotti di origine controllata, nell’interesse comune di produttori e consumatori

–Contaminanti alimentari–Controlli a monte all’azienda e a valle in tutta la catena alimentare fino al consumatore

–Controllo della qualità–A garanzia dei produttori onesti e dei consumatori. Rischio di forme spurie di sussidi all’agricoltura

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137 Economic interests

–Most of the market failures which worsen the allocation of economic resources are paid by consumers as they are the last link in the industry chain: producers of raw materials, manufacturers, wholesalers, retailers, consumers. Moreover, some policy failures increase the economic burden on households through policy measures leading to higher market prices for goods and services and higher taxation, e.g. when budget expenditure is used for producer subsidies distorting markets and investments.–An effective consumer policy, strongly supported by consumer organisations is probably the most promising instrument capable to improve the economic performance of present market economies. It could monitor a transparent and correct implementation of economic policies favouring the combined action of honest policy makers and 'horizontal' pressure groups. Unfortunately the potential of consumer policy in protecting consumer economic interests is not yet fully perceived, neither by policy makers nor by consumer organisations.–The minimal share of financial resources allocated to consumer policy proves this lack of perception at a European level. The EU expenditure for consumer policy accounts for 0,025 % of the EU budget.

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‘Politica economica’ dei consumatori

–Aspetti ‘microeconomici’ sul mercato interno–Continuazione e sviluppo della tutela degli interessidei singoli consumatori di fronte a produttori e venditori (es.: limitazioni della competizione,garanzie insufficienti, ecc.)

–Aspetti di ‘politica settoriale’–In teoria tutto l’intervento pubblico interessa i consumatori che dovrebbero difendere l’interesse comune in ogni sede decisionale–In pratica la politica economica dei consumatori è necessaria e insostituibile almeno quando gli interessi economici dei consumatori sono direttamente coinvolti come nel caso dei prezzi amministrati

•Capacità professionale–E necessario un approfondimento settore persettore per poter difendere efficacemente gli interessi dei consumatori.

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138 Perspectives

•Economic interests of consumers have been recently overlooked•Monitoring other economic policies with special reverence to their economic performance in maximising social welfare has never been effectively done•In order to fulfill the aims of EU Treaties perspective trends should be changed

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139 Linee strategiche generali

–Riforma della istituzioni che allarghi la sfera di influenza dei consumatori

–a tutti i livelli decisionali: internazionale, comunitario, nazionale, regionale–Formazione e riqualificazione del personale addetto, pubblico e privato

–Corsi di formazione e riqualificazione a livello universitario e post-laurea–Finanziamento pubblico

–Alto costo per la formazione di quadri di funzionari pubblici capaci di sostenere l’operatore pubblico. Necessario un finanziamento pubblico adeguato per ridurre la spesa publica nelle politiche settoriali

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900 APPENDICES

9.1 Reminders on consumer surplus9.2 Reminders on producer surplus9.3 Reminders on trade analysis

9.9 References

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910 Reminders: EU Institutions and decision-making

–911 Institutions–912 The Commission–913 The Council–914 The European Parliament–915 Other institutions–916 Decision-making–917 The practice, lobbies–918 The EU budget–919 Concluding remarks

22/04/23 55

910a INSTITUTIONS

21Introduction21European Institutions: necessary for stable development of economic integration22Original set-up: traits of international organisation (National sovereignty) and of federal union (own system of laws and clearly defined supranational authority), in between OECD and US federal government.23Description of present composition, procedures, tasks, competence, functioning of law- and decision-making machinery 24 In 1967 the executive bodies of ECSC, EEC, Euratom merged. The Treaty on European Union (Maastricht Treaty) added to these institutions the Court of Auditors.

22/04/23 56

910b The Treaties

•Consolidated version of the

•Treaty establishing the European Community

–Part One - Principles 43–Part Two - Citizenship of the Union 48–Part Three - Community policies 48–Part Four - Association of the overseas countries and territories 120–Part Five - Institutions of the Community 122–Part Six - General and final provisions 155

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910c Institutions in the Treaties

•Part Five - Institutions of the Community 122

–TITLE I - Provisions governing the institutions 122–Chapter 1 - The institutions 122–Section 1 - The European Parliament –Section 2 - The Council –Section 3 - The Commission –Section 4 - The Court of Justice –Section 5 - The Court of Auditors –Chapter 2 - Provisions common to several institutions–Chapter 3 - The Economic and Social Committee –Chapter 4 - The Committee of the Regions –Chapter 5 - The European Investment Bank –TITLE II - Financial provisions 149

22/04/23 58

911 The institutional system

Council of Ministers (ECM) 15 ministers (or heads of government)Commission (EC) 20 membersParliament (EP) 626 membersCourt of Justice (ECJ) 15 judges, 9 advocates generalCourt of Auditors (ECA) 15 membersEuropean Central Bank (ECB) 6 directorsEuropean Investment Bank (EIB) 15 governors, 25 directorsEconomic and Social Committee (ESC) 222 membersCommittee of Regions (ECR) 222 members

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911 b 1999: Administrative expenditure (f)

Source:http://www.Europa.eu.int/comm/dg19/pdf/synt99en.pdf

22/04/23 60

911 c 1999: Administrative expenditure (t)

Source:http://www.Europa.eu.int/comm/dg19/pdf/synt99en.pdf

22/04/23 61

911 d Organisation

•Division of power of the EU: two components–The European Community: acquis communautaire of EEC, ECSC, Euratom + new policy matters (e.g. monetary union); Titles I-IV of TEU–New provisions for common foreign and security policy (Title V) and Justice and home affairs (Title VI): purely intergovernmental regimes involving only the Council.–Legislation lies with Parliament, execution with the Commission, judication with the Court. The Council shares legislative powers with the Parliament and executive powers with the Commission.

•Legislation: Final decision lies with the Council. The European Parliament has limited legislative powers, consultation and co-decision in some matters.•Execution: Council and Commission: 1. Co-ordinating national policies; 2. Issuing regulations and directives; 3. Giving form and substance to Community policy; 4. Supervising the observation of the treaties and the implementation of decisions. The Council determines the strategy to be adopted, the Commission takes care of daily operations and supervision.

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912 THE EUROPEAN PARLIAMENT

–Members elected directly (mostly by proportional representation) for a 5 years term.–The elected president and vice-presidents constitute the ‘Bureau’, executive body responsible for the agenda, competencies of committees, etc.–Grouping of MoP along party-political lines. Preliminary work carried on in parliamentary committees (standing or temporary, general or special). Rapporteurs report to the full Parliament, some with draft resolutions to be voted. [sectoral bias]–Seat: secretariat in Luxembourg, committees meet in Bruxelles, plenary sessions (1 week per month) in Strasbourg, –Competencies:

•Legislation: 4 procedures: consultation (advisory), cooperation (introduced by the SEA for internal market and policies, the Council can reject EP amendments only unanimously, for EC proposals the reconciliation procedure), co-decision (introduced by TEU, for environment, technology and transport), and assent (a possible EP veto, for conclusion of Treaties and EU extension, introduced by SEA, extended by TEU)•Budget: EP can accept or reject the budget. For obligatory expenditure can propose modifications within the total expenditure set, otherwise can amend the draft budget.•Policy: can initiate new policies, extend or amend existing ones.•Control (limited): The Commission must answer spoken or written questions and discuss the General Report. The EP can force the EC to resign by a motion of censure.

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912a Number of representatives

–Art. 190 - 2. The number of representatives elected in each Member State shall be as follows:

–Belgium 25–Denmark 16–Germany 99–Greece 25–Spain 64–France 87–Ireland 15

–Italy 87–Luxembourg 6–Netherlands 31–Austria 21–Portugal 25–Finland 16–Sweden 22–United Kingdom 87

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912b Members of Parliament

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Germany 99United Kingdom 87Italy 87France 87Spain 64Netherlands 31Portugal 25Greece 25Belgium 25Sweden 22Austria 21Finland 16Denmark 16Ireland 15Luxembourg 6Total 626

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912c Political groups

PSE Party of European Socialists

PPE European People's Party/European Democrats

ELDR Liberal, Democrat and Reform Party

UPE Gruppen Union for Europa GUE/NGL European United Left/Nordic Green Left

Verts Greens

ARE Group of the European Radical Alliance I-EDN Group of Independents for a Europe of Nations NI Non-attached

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912d Party location in EP

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912e Composition of the E P

PSE PPE ELDR UPE GUE/NGL V ARE I-EdN NI ? Total

B 5 6 5 - - 5 2 - 2 - 25 DK 3 1 6 - 1 - - 4 - 1 16 D 33 53 - - 6 7 - - - - 99 EL 9 9 - - 5 - - - - 2 25 E 24 29 2 - 4 - 2 - - 3 64 F 22 15 - - 6 9 - 13 5 17 87 IRL 1 4 1 6 - 2 - - - 1 15 I 17 32 1 9 6 2 7 - 5 8 87 L 2 2 1 - - 1 - - - - 6 NL 6 9 8 - 1 4 - 3 - - 31 A 7 7 - - - 2 - - 5 - 21 P 12 9 - 2 2 - - - - - 25 FIN 3 5 5 - 1 2 - - - - 16 S 6 7 4 - 3 2 - - - - 22 UK 30 36 10 - - 2 2 1 1 5 87 TOTAL 180 224 43 17 35 38 13 21 18 37 626

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912f Italian political groups

EPP Forza Italia, CCD, CDU, PPI, U.D.Eur, RI-Dini,

Pensionati PSE Democratici di Sinistra, Socialisti Italiani ELDR PRI/Liberali, I Democratici GREENS Verdi GUE/NGL Rifondazione Comunista, Comunisti Italiani ARE Lista Bonino UPE Alleanza Nazionale/Patto Segni I-EDN nessuno Non iscritti Lega Nord, Movimento Sociale Tricolore

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913 THE COUNCIL

•The Council of Ministers–One representative of the government of each of the member states. Composition varies with matter at hand, meetings as considered necessary–Presidency taken in turn for six months in alphabetical order (troika: past present and future presidents)–Decisions taken with unanimity (defence, home affairs) or with qualified majority (62 votes, and at least from 10 member states if proposals are not from the Commission) increased by SEA and TEU–Ministers are accountable to their national parliament and not to the EP

•The European Council is composed by heads of government (of state for F) sets broad guidelines and new stages.

–Small staff: preparatory work carried out by the Committee of Permanent Representatives (COREPER) meeting every week on task-oriented workgroups on Commission proposals. If COREPER agreeable the Council decision is a formality.–Roles:

•Community matters: final say and decision in Community legislation•External matters: final decision (negotiations are mandated to the Commission)•Other: intergovernmental co-operation in matters such as foreign affairs, security, justice, etc.

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913a Votes in the Council

each togetherF, D, I, UK 10 40E 8 8ND, B, GR, P 5 20A, SW 4 8DK, IR, FI 3 9L 2 2Total 87Qualified majority 62

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914 THE COMMISSION

–Members appointed by governments (5-year period), 1 per country (2 for F, D, I, UK, E). –Independent from governments, with the same powers, cannot be withdrawn. Decisions are made by majority vote. The Commission is accountable to the EP and can be forced to resign as a body by a motion of censure.–International staff (approx. 20.000 officials) Each commissioner responsible for some policy sectors and Directorate General. The president is responsible for the consistency of the action of various commissioners.–Assisted by over 300 specialist committees consulted for drafting European legislation, other 100 have a regulatory or management role. Composed of representatives of member states and corporatist groups.–Major tasks:

• initiation of actions: new policies, regulations, directives, decisions. Safeguard the Community interests against national interests dominating the Council. [Prodi changes)• execution of policies. Powers bestowed by the treaties (customs union, fight monopolies and competition distortions by governments) and by the Council (A proposal agreed by the majority of its management committee needs not to be submitted to the Council)• implementation of the budget: structural funds, and raise loans for projects• enforcement of laws: supervision of the correct implementation of the treaties and decisions (inquiries, fines, institution of legal proceedings before the Court).

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914a The Prodi Commission (1)

Romano Prodi President Old Commission DGs

Neil Kinnock Vice-president Administrative Reform

DG-IX Personnel and Administration + Informatics Directorate

Loyola de Palacio Vice-president Relations with the European Parliament, Transport & Energy

DG-VII Transport + DG XVII Energy + Euratom Supply Agency + Secretariat-General of the European Commission: Relations with the European Parliament, the Economic and Social Committee and the Committee of the Regions

Mario Monti Competition DG-IV Competition

Franz Fischler Agriculture, Rural Development & Fisheries

DG-VI Agriculture, Rural Development + DG-XIV Fisheries

Erkki Liikanen Enterprise & Information Society DG-III Industry + DG-XXIII Enterprise Policy, Distributive Trades, Tourism and Cooperatives + Promotion of Innovation and Encouragement of SME Participation

Frits Bolkestein Internal Market DG-XV Internal Market and Financial Services Philippe Busquin Research DG-XII Science, Research, and Development

Pedro Solbes Mira Economic & Financial Affairs DG-II Economic and Financial Affairs

Poul Nielson Development & Humanitarian Aid

DG-VIII Development + European Community Humanitarian Office

Günter Verheugen Enlargement DG-IA External Relations: Europe and the New Indip. States, Common Foreign and Secururity Policy and External Missions + Task Force for the Accession Negotiations (TFAN)

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915 OTHER INSTITUTIONS

•The Court of Auditors (ECA): Examines the accounts of the EU to determine lawful procedures and sound financial management•The Economic and Social Committee (ESC): composed of representatives of employers and employees, professionals, consumers, etc. Advisory capacity to EC and to the Council•The Committee of the Regions (ECR): advisory capacity on local authority and regional interests.•The European System of Central Banks (ESCB): maintain price stability, implement the monetary policy and support the general economic policy of the EC.•The European Investment Bank (EIB): grants credit to business companies and governments for projects of common interests, finances projects in less developed regions

22/04/23 74

915a Court of Justice

–No task in the four new TEU areas (foreign, defence, justice, home)–Ensures proper and consistent interpretation and application of EU law–Rights conferred and regulation imposed directly on citizens of member states. Citizens can appeal to European rules in national courts.–The ECJ is the supreme body to settle conflicts, national judges are subordinate to the ECJ–Judges and advocates are appointed for a 6-year period, are entirely independent and cannot be dismissed.–Access: unlimited for Member States and EU institutions, limited for natural and legal persons.–Subject matters concentrated on European policy-making (free movement of good, undistorted competition, etc.)–Proceedings before the Court of three categories: failure to fulfil an obligation (by member States, EU institutions, etc.), annulment (against binding acts of the EU), failure to act (Commission or Council infringe treaties by not acting)

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915b Court of Auditors

–The European Court of Auditors is organized and functions in accordance with the principle of collective responsibility. The EC Treaty states that there are to be fifteen Members of the Court. The Members are appointed for a (renewable) term of six years by the Council of the European Union, acting unanimously after consulting the European Parliament.–The Members of the Court of Auditors are chosen from among persons who belong or have belonged to external audit bodies in their respective countries, or who are especially qualified for this office.–The President is elected by the Members for a term of three years and may be re-elected. His role is that of a primus inter pares and he ensures that the various departments of the Court operate smoothly and that the institution discharges its duties correctly.–Appropriations that are subject to audit are shown in the following table:

–General budget of the European Union –Budget of the European Coal and Steel Community –European Schools–Joint European Torus –European Centre for the Development of Vocational Training –European Foundation for the Improvement of Living and Working Conditions

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915c The Economic and Social Committee

•Tasks:–a consultative role vis-à-vis the three large institutions (EP, Council, Commission);–enabling the organizations of civil society to be more closely involved in and to make a greater contribution to the European enterprise–strengthening the role of civil society in non-Community countries  –The Committee has 222 members that consists of “representatives of the various categories of economic and social activity, in particular representatives of producers, farmers, carriers, workers, dealers, crafts-men, professional occupations and representatives of the general public” (consumers, envi-ronmentalists, families, associations, etc.)–The Committee’s Rules of Procedure allow members to form groups representing employers, workers and other categories of economic and social activity.–The Committee has six sections, which deal with the main areas

Section for Economic and Monetary Union and Economic and Social Cohesion;Section for the Single Market, Production and Consumption;Section for Transport, Energy, Infrastructure and the Information SocietySection for Employment, Social Affairs and CitizenshipSection for Agriculture, Rural Development and the EnvironmentSection for External Relations 

22/04/23 77

915c-bis Membership of ESC & CoR

0

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Finland

Denmark

Irelan

d

Luxembourg

Mem

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SC &

of C

oR

22/04/23 78

915d The Committee of the Regions

–The members of the Committee and an equal number of alternate members shall be appointed for four years by the Council acting unanimously on proposals from the respective Member States. Their term of office shall be renewable. The members of the Committee may not be bound by any mandatory instructions. They shall be completely independent in the performance of their duties, in the general interest of Community.–The Committee of the Regions shall elect its chairman and officers from among its members for a term of two years.–The Committee of the Regions shall be consulted by the Council or by the Commission where the Treaty so provides and in all other cases, in particular those which concern cross-border cooperation, in which one of these two institutions considers it appropriate.–The Committee of the Regions may be consulted by the European Parliament.–It may issue an opinion on its own initiative in cases in which it considers such action appropriate.–The opinion of the Committee, together with a record of the proceedings, shall be forwarded to the Council and to the Commission.

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915d-bis Members

–The number of members of the Committee of the Regions shall be as follows:–Belgium 12–Denmark 9–Germany 24–Greece 12–Spain 21–France 24–Ireland 9–Italy 24–Luxembourg 6–Netherlands 12–Austria 12–Portugal 12–Finland 9–Sweden 12–United Kingdom 24.

22/04/23 80

915e The European Investment Bank

•The task of the European Investment Bank, the European Union's financing institution, is to contribute towards the integration, balanced development and economic and social cohesion of the Member Countries. To this end, it raises on the markets substantial volumes of funds which it directs on the most favourable terms towards financing capital projects according with the objectives of the Union. Outside the Union the EIB implements the financial components of agreements concluded under European development aid and cooperation policies. •Its members are the Member States of the Union, who all subscribe to its capital.

•The Structure •-         The Board of Governors•-         The Board of Directors •-         The Management Committee •-         The Audit Committee

22/04/23 81

916 DECISION-MAKING

•Legal instruments–Regulations: general in application, binding in its entirety, directly applicable in all member states. Nation legislation is overruled by regulations–Directives: binding to Member States as to the result. Leaves the national authorities the choice of form and methods. National laws and decrees are needed to implement the directive.–Decisions: binding in its entirety upon those to whom it is addressed–Recommendations and opinions have no binding force.

•Regimes for regulations and directives–Community : Decision taking implies qualified majority voting–Others: in the two new pillars of competencies (foreign and defence policy, justice and home affairs) the traditional inter-governmental decision-making procedure will prevail (unanimity in the Council)

22/04/23 82

916a Features of the legislative process

•1. Preparation: The Commission elaborates a planned proposal (its staff, committees of national experts), presents its opinions, and strategy in communications to the ECM and EP. ECM and EP communicate their reactions to the EC. The EC revises its plans, and submits its proposal to ECM and EP in the shape of draft regulations or directives.•2. First reading (consultation): The proposal is discussed in the ESC, ECR, EP, ECM•3. Second reading (negotiation): The Council’s decision on the proposal is prepared by the COREPER in workgroups with representatives of the EC. Any amendments proposed will be submitted by COREPER to ECM together with ESC and EP positions and recommendations. The EP discusses the proposal, the Council’s position and, where competencies exist, negotiates in the framework of a Conciliation Committee. The EC participates by intermediating and adapting proposals.•4 Enactment: The Council decides (cooperation), or elaborates a joint text with the EP (co-decision) for the enactment (publication on the Official Journal)

22/04/23 83

916b Decision process: flow chart

22/04/23 84

916c The practice of decision making

–Institutional set-up conducive to international co-operation–Majority voting reduces the transaction cost of reaching co-operative agreements–By using the two-level strategy (simultaneously playing the EU and the national political game) governments can use the legitimacy of EU to overrule domestic lobbies or mobilise domestic coalitions.–Speed of decision making slowed down by:

•Subjects: difficult positive integration for different national laws•Size: The larger the size of EU (from 6 to 15 members) the more diverse are the interests and more complicated the negotiations •Detail: detailed the regulations for national acceptance and consistency

–Remedies: Majority voting, focus on general principles, geographical differentiation (two-speed Europe), reduce sectoral segmentation. –Lobby groups: Many other institutions involved (national, etc.) acting as lobby groups. (Lobbying: informal exchange of information in order to try to influence the decisions of public authorities). Lobbying has increased due to:

•Growing regulatory authority•Discretion over spending considerable funds: redistribution (social, regional) Estimate (Anderson et al. 1991) of 3000 lobby organisations and 10000 lobbyists

22/04/23 85

920 Reminders: price policy

•921 Consumer surplus•922 Prtoducer surplus•923 Trade•924 Domestic policies •925 Border measures (imports)•926 Border measures (exports)•927 Customs Union

–Suggested readings•J.P. Houck, Elements of Agricultural Trade Policies, Macmillan, Londo

22/04/23 86

921 Consumer surplus

0 20 40 60 80 100

Strategy A: Free access

0123456789

1011

0 10 20 30 40 50 60 70 80 90 100

Estimating the Demand function

22/04/23 87

921a Monopoly

Qd(Pw)Qd(Pw)Qs(Pw)Qs(Pw)

-4

-2

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2

4

6

8

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12

0 10 20 30 40 50 60 70 80 90 100

Strategy B: Monopoly

0

50

100

150

200

250

300

0 10 20 30 40 50 60 70 80 90 100 110

Producer revenue (R = Q*P)

22/04/23 88

921abis Monopoly1

Q = f(P) Q = 100 - 10PP = f(Q) P = 10 - Q/10

R = Q * f(Q) = F(Q) R = Q * P = Q * (10 - Q/10) = 10Q - Q2/10R' = f(Q) R' = 10-2Q/10 R' = 0 10-2Q/10 = 0Q# Q/5 =10

Q#= 50P# = f(Q#) P# = 10 - Q/10 = 10-50/10 = 10-5 = 5

22/04/23 89

921b Price strategies

0

2

4

6

8

10

12

0 20 40 60 80 100

Strategy C: Full price discrimination

0

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4

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Strategy D: Agreement on price

22/04/23 90

921c Efficiency and equity

Consumers Producers Society LossesA: Free access ? 0 ? 0B: Monopoly ? 250 ? ?C: Full price discrimination 0 500 500 0

Consumers Producers Society LossesA: Free access 500 0 500 0B: Monopoly 125 250 375 125C: Full price discrimination 0 500 500 0D: Agreement on price 320 160 480 20Rank for efficiency: A = C, D, CRank for equity: A, D, B, C

22/04/23 91

922 Producer surplus

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Q3

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SP

Q

A

FC

P

Pw

Q1

22/04/23 92

923 Trade: Close markets

Da

Pe

Qe

Pa

0 Qe0

Db SbSa

Pe

Pb

22/04/23 93

923a Effects of international trade

Da

Pe

Pw

Q2Q1 Qe

Pa

0

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T0

Pw

Q2Q1 Qe0

ESb

ESa

Db SbSa

Pe

PbPw

22/04/23 94

923b Example

Market A (closed) Unified market (A+B)Demand elasticity -0.5 Unified price level 29.1Supply elasticity 1 Global change in surplus 656.3Quantity produced and consumed 60 Sub-market APrice 50 Quantity Demanded 78.6Intercept of demand function 424 Quantity Supplied 34.9Intercept of supply function 1.2 Quantity imported 43.7Producer revenue 3000 Change in consumer expend. -711.3

Change in producer revenue -1983.8Market B (Closed) Change in consumer surplus 1448.9Demand elasticity -0.5 Change in producer surplus -991.9Supply elasticity 1 Change in social surplus 457.0Quantity produced and consumed 70 Sub-market BPrice 20 Quantity Demanded 58.0Intercept of demand function 313 Quantity Supplied 101.9Intercept of supply function 3.5 Quantity exported 43.8Producer revenue 1400 Change in consumer surplus -582.5

Change in producer surplus 781.9Change in social surplus 199.4

22/04/23 95

923c Example

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P

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SADAP

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22/04/23 96

923d Example

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P

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SBDB

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22/04/23 97

923 Domestic policies

22/04/23 98

923a Production subsidy

Production subsidyWorld market Price Pw 30Quantity produced (free trade) Q1 400Elasticity of supply Es 1Subsidy to production s 10Assumed supply function Q =K*P ESupply intercept Ks = Q1 / Pw Es 13,3Domestic Price Pc = Pw + s 40Supplied Quantity Q3 =Ks*Pc Es 533Producer revenue (ante) [C] Q1 *Pw 12000Producer revenue (post) [A+B+C+F] Q3*Pc 21333 20667

Transfers from budget [A+B] (Pc-Pw)*Q3 4000Social cost [B] (Q1-Q3)*(Pc-Pw)/2 667Change in producer surpl [A] (Pc-Pw)*(Q1+Q3)/2 4667

0

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Q1

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Pc

22/04/23 99

923b Tax on consumption

Consumer surplus World market Price Pw 30Quantity consumed (free trade) Q2 700Elasticity of demand Ed -0,5Tax on consumption t 10Assumed demand function Q =K*P EDemand intercept Kd = Q2 / Pw Ed 3834Domestic Price Pc = Pw + t 40Demanded Quantity Q4 =Kd*Pc Ed 606Consumer expenditure (ante) [M+H] Q2 *Pw 21000Consumer expenditure (post) [M+N] Q4*Pc 24249Transfers to budget (taxpayer benefit ) [N] -(Pc - Pw) * Q4 -6062Lost consumer surplus (social cost) [G] -(Pc-Pw)*(Q2-Q4)/2 -469Change in consumer surplus [N+ G] -(Pc-Pw)*(Q2+Q4)/2 -6531

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G

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MH

Q4 Q2

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Pc

22/04/23 100

923 Border Policies

•Small country case: Fully elastic supply on world market at price Pw• Border tariff

–Scenarios: (assumption of free competition)•Autarky (import bans or prohibitive tariff) Producers of country A are less efficient than RoW producers beyond point G•Free trade, market expands to OF, market share of imports increase•Protection increased production & reduced efficiency

–Trade effects: Domestic price, Demand, Supply, Net trade, –Financial effects: [Producer Revenue, Consumer Expenditure, Budget Proceeds, Trade Balance]–Welfare effects: Producer Surplus, Consumer Surplus, Social surplus

• Quantitative restriction–Restricting imports to CD (by licences given to importers) equivalent to a tariff ‘t’–The government does not benefit of border proceeds (HRUI) which flow to importers or exporters (in which case would be a social loss), unless licence given by auction.–Voluntary export restraints (VER), no government revenue, social loss. Due to institutional (WTO) prohibition of establishing new unilateral trade obstacles

22/04/23 101

923 Border Tariff (small country)

Border TariffWorld market Price Pw 30Quantity consumed (free trade) Q2 700Quantity produced (free trade) Q1 400Elasticity of demand Ed 1Elasticity of supply Es -0,5Border Tariff t 10Assumed functions (constant E) Q =K*P EDemand intercept Kd = Q2 / Pw Ed 3834Supply intercept Ks = Q1 / Pw Es 13,3Domestic Price Pc = Pw + t 40Demanded Quantity Q4 =Kd*Pc Es 606Supplied Quantity Q3 =Ks*Pc Es 533Consumer expenditure (ante) Q2 *Pw 21000Consumer expenditure (post) Q4*Pc 24249Lost consumer surplus (social cost) [G] -(Pc-Pw)*(Q2-Q4)/2 -469Change in consumer surplus [N+ G] -(Pc-Pw)*(Q2+Q4)/2 -6531Producer revenue (ante) [C] Q1 *Pw 12000Producer revenue (post) [A+B+C+F] Q3*Pc 21333Transfers from consumers [A+B] (Pc-Pw)*Q3 4000Change in producer surpl [A] (Pc-Pw)*(Q1+Q3)/2 4667Social cost at production [B] (Q1-Q3)*(Pc-Pw)/2 667Trade balance (post) [L] (Q4 - Q3)*Pw -2187Budget benefit [J ] (Pc-Pw)*(Q4+Q3) 729

0

10

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DP

Q

B

S

A

C F

GG

H

J

L

Pw

Q4Q3Q1 Q2

Pc

22/04/23 102

923b Border Tariff (large country)

PwPw'

Esa'

Da

Pe

Q2Q1 Qe

Pa

0

Pw

T'0

Pw

Q2Q1 Qe0

ESb

Db SbSa

Pe

PbPw

ESa

PwPw'

Pa

Q1' Q1' Q2'Q2'

T

22/04/23 103

923c Terms of trade (M)

0

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30

40

50

60

0 100 200 300 400 500 600 700 800

R

DP

Q

B

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A

C F

G

H

J

L

Pw

P

Q2Q1Q3 Q4

Pw'

Change in international terms of trade Pw - Pw'Total consumer welfare loss A+B+J+G Net welfare loss G Transfers to the budget (taxpayers) J Transfers to producers A+BDeadweight losses at production BProducer surplus ATransfers from Rest of World to budgetRTrade balance L

22/04/23 104

925a Export subsidy (small country)

Small countryExport subsidy (change in domestic price) P - PwTransfers to Producers A+B+C+E Net welfare loss E Transfers from the budget (taxpayers) B+C+E Transfer from consumers A+BDeadweight losses at consumption BProducer surplus A+B+CTotal social welfare loss B+ETrade balance L

P

Pw

Q2Q1Q30

D SP

Q4 Q

A CC EB

B

22/04/23 105

925b Export subsidy (large country)

PwPw'

Esb'

Da

Pe

Q2Q1 Qe

Pa

0

Pw

T'0

Pw

Q2Q1 Qe0

ESb

Db SbSa

Pe

PbPw

ESa

PwPw'

Pb

Q1' Q1' Q2'Q2' T

22/04/23 106

925c Terms of trade (X)

Large countryExport subsidy (change in domestic price) P - PwTransfers to Producers A+B+C+E Net welfare loss E Transfers from the budget (taxpayers) B+C+E Transfer from consumers A+BDeadweight losses at consumption BProducer surplus A+B+CTotal social welfare loss B+ETransfers from taxpayers to Rest of World F+G+H

P

Pw

Q2Q1Q30

D SP

Q4 Q

A CC EB

F G H

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926 Customs Union

•Production and trade effects–Custom Union as a second best for world-wide free trade–Positive and negative welfare effects in establishing a CU. To be feasible, in economic terms Benefits must be greater than Costs, in political terms advantages and disadvantages must be fairly distributed among partners.–Trade creation (Viner, 1950): when trade between partners A and B increases. More costly production is substituted by cheaper imports. Shift of production from a less to a more efficient producer–Trade expansion: Lower prices expand total demand and imports–Trade diversion: Imports (M) from a more efficient producers (world market) are replaced by imports from a less efficient producer (partner) due to the common external tariff.

•Country A is a high-cost producer, country B low cost producer•From free trade: trade creation, expansion, diversion•From protection: trade creation, expansion, diversion

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926a Welfare effects and invisible income transfers

–A custom union generates social welfare effects and invisible income transfers among partner countries –The trade and welfare effects of a customs union between country A and B are described (small country case) first [1] by assuming no common tariff (t = 0; Pc = Pb) then [2] a common tariff equal to the external tariff existing in country A (t = Pa-Pw; Pc =Pa) and eventually [3] by assuming a common level of protection intermediate between A and B (t = Pc-Pw; Pa<Pc<Pb)–The trade and welfare effects of a “price harmonisation programme” in country A and B are described at first , implying the setting of an equal level of domestic prices before creating a Customs Union, but maintaining border controls and levies between countries A and B. The effects on social welfare of such ‘price equalisation programme’ would benefit country A under all three assumptions, due to trade creation and trade expansion effects, and damage country B under assumption [2] and [3], due to trade diversion effects.–The welfare effects and the invisible income transfers between A and B generated by the creation of a “customs union” between countries A and B are then described. Border barriers between A and B are dismantled and a common external tariff is instituted.–The creation of a customs union would benefit country B and damage country A in assumptions [2] and [3], mainly due to the invisible income transfers generated, which offset the allocative gains (in country A) or losses (in country B). Consumers in country A pay higher prices for the imported goods, benefiting producers in country B as a consequence of the intra-CU international trade flowing without border tariffs)

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926b Customs union: no external tariff(f)

A CB E

Da Sa

Q

P

0

Pc=Pw

Pa

Q1 Q2Q4Q3

Db Sb

Q

P

0

Pw

P

Q 6Q5

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926c Customs union: highest common tariff

C

Da Sa

Q

P

0

Pw

Pc=Pa

Q1 Q2Q4Q3

HG I

Db Sb

Q

P

0

Pw

P

Q 6Q5Q7 Q8

F

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926d Customs union: intermediate common tariff (f)

A' C'B' E'

Da Sa

Q

P

0

Pw

Pa

Q1 Q 2Q4Q3

H'G' I'

Db Sb

Q

P

0

Pw

Q 6Q5Q7Q8

JPc

F'

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926e Synoptic table

Price harmonization Customs UnionAlternative policies [1] Pc = Pb [2] Pc = Pa [3] Pa<Pc<Pb [1] Pc = Pb [2] Pc = Pa [3] Pa<Pc<PbCountry A Consumers A+B+C+E A'+B'+C+E' A+B+C+E A'+B'+C'+E' Producers -A -A' -A -A' Taxpayers -C -C' -C -C = -(G+H+I) -C' -J Overall B+E B'+E' B+E -C = -(G+H+I) B'+E' -JCountry B Consumers -F-G -F'-G' -F-G -F'-G' Producers F+G+H F'+G'+H' F+G+H F'+G'+H' Taxpayers -G-H-I -G'-H'-I' Overall -G-I -G'-I' H H'Customs Union (A+B) B+E -G-I B'+E'-G'-I' B+E -G-I B'+E'-G'-I'Invisible transfersfrom A to B C = (G+H+I) (G'+H'+I')CU budget proceeds J - (G'+H'+I')

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999 References

•1 Introduction•Informations sources and contacts•EU activities and policies•Informations sources and contacts•EU activities and policies•Glossary•2 Developments •Treaty establishing the European Community - (consolidated text)•Draft Treaty establishing a Constitution for Europe (Official Journal C 169 of 18 July 2003)•3 Eu Budget•Quantitative features•Budget 2003 & 2004; Eur-Lex• •4 The Common Agricultural Policy • S. Tarditi, Consumer Interests in the Common Agricultural Policy, Report to EU Commission DG SANCO, University of Siena. (file in .pdf)•S. Tarditi (2003) Reminders of Price Policy Analysis and exercises University of Siena (.doc) (file in .pdf)•S. Tarditi - A future policy in the general interest In Eurochoices, vol.. 1 n. 3. Counterpoint to Commissioner F. Fishler's Guest Editorial: Agricultural Policy for the future – a synthesis of competing concerns. In Eurochoices, vol.. 1 n. 2. ( . pdf format)•The EU Commission’s Proposals for Reform of the CAP. Forum in “Intereconomics”, September/October 2002. S. Tarditi, CAP Pseudo-Reforms: a Penelopean Web ( .pdf format)•S. Tarditi, Farmers and Consumers: Towards a Symbiosis? Euro Choices, Premiere Issue, Spring 2001 (file .pdf) •U. Koester, J Marsh, S.Tarditi. CAP is something we cannot be proud of. Counterpoint to: 7 EU Agricultural Ministers “CAP is something we can be proud of” Financial Times 23-9-02. (.pdf format)•

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999 cont.

•5 Structural Policies•Regional Policy InforegioSecond Report on Economic and Social Cohesion (2001)Second progress report on economic and social cohesion (2003) •6 Other Internal Policies•Internal MarketCompetition Policy•Environment•Consumers• •7 External Action•External trade• National statistics•Development policy•ECHO Humanitarian Aid Office•External Cooperation programmes• •8 Perspectives •Enlargement• S. Tarditi, Impact of the Common Agricultural Market Policy on Central and Eastern European Countries, CIPAS, Università di Siena (file in .pdf)• Annex on Nominal Assistance Coefficients. (.pdf)• Global impact of EU policiesWTOG. Anania (a cura di) Agricultural negotiations in WTO, references J. Marsh, S. Tarditi Cultivating a crisis - The Global Impact of the Common Agricultural policy, Consumers International, London. (file in .pdf) Press advisory •9 Synopsis and Conclusions•Further readings in Italian• • •Suggested textbooks:•Willem Molle (2001) The economics of European Integration: theory, practice, policy. 4th edition. Asgate, Aldershot•Jacques Pelkmans (2001) European Integration: Methods and Economic Analysis, FT Prentice Hall•Loukas Tsoukalis (2003) What Kind of Europe? Oxford University Press