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-27.
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 preference.
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 subsidize exports. 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 enlargement.
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