The CAP is administered by the European Agricultural Guidance and Guarantee Fund, with major policy and operational decisions (e.g. the fixing of annual farm prices) residing in the hands of the Council of Ministers of the EU. The farm sector is assisted in four main ways:
(a) around 70–75% of EU farm produce benefits directly from the operation of a PRICE-SUPPORT system that maintains EU farm prices at levels in excess of world market prices. The prices of milk, cereals, butter, sugar, pork, beef, veal, certain fruits and vegetables and table wine are fixed annually and, once determined, are then maintained at this level by support-buying of output that is not bought in the market. MONETARY COMPENSATION AMOUNTS are used to convert the common price for each product into national currencies and to realign prices when the exchange rates of members’ currencies change;
(b) variable TARIFF rates are used to increase import prices to internal price-support levels in the cases of the products referred to above, thus ensuring that EU output is fully competitive. The 25% of EU farm produce that is not subject to direct price-support relies entirely on tariff protection to maintain high domestic prices;
(c) EXPORT SUBSIDIES are used to enable EU farmers to lower their export prices and thus compete successfully in world markets;
(d) grants are given to facilitate farm modernization and improvements as a means of improving agricultural efficiency.
The CAP is the largest single component of the EU’s total budget. In 2003 it accounted for 45% of total EU spending. Over 90% of the CAP’s budget in recent years has been spent on price-support and export subsidies.
Although the CAP can claim a number of successes, most notably the attainment of EU self-sufficiency in many food products, critics complain it has many drawbacks: consumers lose out because they are required to pay unnecessarily high prices for food products; resources are misallocated because inefficient, high-cost farmers are overprotected, and too little of the CAP’s resources are devoted to long-term structural reform and modernization of the sector; artificially high prices supported by intervention buying encourage gross overproduction and results in large surpluses (‘mountains’) of produce that are expensive to stockpile and difficult to sell off; subsidized exports from the EU can depress world farm prices, making life even more difficult for the less developed countries, many of which (specifically non-LOMÉ AGREEMENT countries) had already been hard hit by the trade diversionary effects of the EU (see TRADE DIVERSION).
However, the CAP has become less protectionist as a result of the ‘Uruguay Round’ of trade concessions (see WORLD TRADE ORGANIZATION). The EU committed itself (over a six-year period starting in 1995) to reduce its import levies by 36%, reduce its domestic subsidies by 20%, and reduce its export subsidies by 36%. Further reductions are currently being negotiated as part of the ‘Doha Round’. See INCOME SUPPORT.
common currency see EURO.
common external tariff see CUSTOMS UNION, COMMON MARKET.
common law the body of law built up over many years as a result of previous court decisions interpreting legislation. These establish legal precedents that then need to be followed consistently in subsequent court cases. Compare STATUTE LAW.
common market a form of TRADE INTEGRATION between a number of countries in which members eliminate all trade barriers (TARIFFS, etc.) amongst themselves on goods and services and establish a uniform set of barriers against trade with the rest of the world, in particular, a common external tariff (see CUSTOMS UNION). In addition, a common market provides for the free movement of labour and capital across national boundaries. The aim of a common market is to secure the benefits of international SPECIALIZATION, thereby improving members’ real living standards.
The short- and medium-term impact of the formation of a common market is mainly felt through an increase in trade between member countries. TRADE CREATION is typically associated with a reallocation of resources within the market favouring least-cost supply locations and a reduction in prices resulting from the elimination of tariffs and lower production costs. (See GAINS FROM TRADE.)
In addition, a common market can be expected to promote longer-term (dynamic) changes conducive to economic efficiency through:
(a) COMPETITION. The removal of tariffs, etc., can be expected to widen the area of effective competition; high-cost producers are eliminated, while efficient and progressive suppliers are able to exploit new market opportunities;
(b) ECONOMIES OF SCALE. A larger ‘home’ market enables firms to take advantage of economies of large-scale production and distribution, thereby lowering supply costs and enhancing COMPARATIVE ADVANTAGE;
(c) TECHNOLOGICAL PROGRESSIVENESS. Wider market opportunities and exposure to greater competition can be expected to encourage firms to invest and innovate new techniques and products;
(d) INVESTMENT and ECONOMIC GROWTH. Finally, the virtuous circle of rising income per head, growing trade, increased productive efficiency and investment may be expected to combine to produce higher growth rates and real standards of living.
The EUROPEAN UNION is one example of a common market. See ANDEAN PACT.
communism a political and economic doctrine that advocates that the state should own all property and organize all the functions of PRODUCTION and EXCHANGE, including LABOUR. Karl MARX succinctly stated his idea of communism as ‘from each according to his ability, to each according to his needs’. Communism involves a CENTRALLY PLANNED ECONOMY where strategic decisions concerning production and distribution are taken by government as opposed to being determined by the PRICE SYSTEM, as in a market-based PRIVATE ENTERPRISE ECONOMY. China still organizes its economy along communist lines, but in recent years Russia and other former Soviet Union countries and various East European countries have moved away from communism to more market-based economies.
community charge see LOCAL TAX.
company see FIRM.
company formation the process of forming a JOINT-STOCK COMPANY, which involves a number of steps:
(a) the drawing up of a MEMORANDUM OF ASSOCIATION;
(b) the preparation of ARTICLES OF ASSOCIATION;
(c) application to the COMPANY REGISTRAR for a CERTIFICATE OF INCORPORATION;
(d) the issue of SHARE CAPITAL;
(e) the commencement of trading.
company laws a body of legislation providing for the regulation of JOINT-STOCK COMPANIES. British company law encouraged the development of joint-stock companies by establishing the principle of LIMITED LIABILITY and providing for the protection of SHAREHOLDERS’ interests by controlling the formation and financing of companies. The major provisions of UK company law are the 1948, 1976 and 1989 Companies Acts. See ARTICLES OF ASSOCIATION, MEMORANDUM OF ASSOCIATION, FIRM.
company registrar the officer of a JOINT-STOCK COMPANY who is responsible for maintaining an up-to-date SHARE REGISTER and for issuing new SHARE CERTIFICATES and cancelling old share certificates as shares are bought and sold on the STOCK EXCHANGE. Many companies, however, have chosen to subcontract these tasks to specialist institutions, often departments of commercial banks.
The role of the company registrar identified above should not be confused with that of the role of the government’s REGISTRAR OF COMPANIES, who is responsible for supervising all joint-stock companies.
comparability an approach to WAGE determination in which levels or increases in wages for a particular group of workers or for an industry are sought or offered through COLLECTIVE BARGAINING, which maintains a relationship to those for other occupations or industries. Comparability can lead to COST-PUSH INFLATION.
Fig. 24 Comparative advantage. The physical output of X and Y from a given factor input, and the opportunity