Mr. Vittas, economist in the Central European Division of the European Department, has studied economics at the Athens School of Economics, the University of Manchester, and the University College, London.
The author is grateful to Mr. M. Fiorini, a summer trainee at the Fund when this paper was prepared, for many useful comments and suggestions.
Such measures were introduced following the appreciation of the deutsche mark in November 1969 and the appreciation of the deutsche mark and of the guilder in early 1971.
It is assumed, for simplicity, that for each agricultural commodity produced in the EEC, the demand for exports to nonmember countries is perfectly elastic, but at a price level lower than the corresponding EEC intervention price. This implies that foreign demand is superseded by the “demand” of the EEC intervention agencies and thus does not play any direct role in the determination of market prices within the EEC. Relaxation of this assumption, which seems somewhat realistic for the majority of the EEC agricultural commodities, would not materially alter the conclusions of the analysis presented in this paper.
Only the basic features of the Common Agricultural Policy of the EEC are presented here. It should be noted that for a few agricultural commodities the EEC has not yet adopted a common policy, while for a few others it has provided no minimum guarantee price. For such commodities, the analysis in this paper does not apply. A detailed account of EEC regulations for individual commodities can be found in The European Community’s Common Agricultural Policy: Implications for U.S. Trade, published by the U.S. Department of Agriculture, Economic Research Service, October 1969.
In the extreme case in which Germany may account for the whole of the EEC demand and supply schedules, the latter will not shift at all. This and other extreme cases which require qualification are of no practical importance and are therefore ignored in this paper.
For each agricultural product the common external import levy of the EEC is equal to the difference between the threshold price and the world price, both measured in EEC units of account. With the devaluation of the U.S. dollar, a given world price in terms of U.S. dollars corresponds to a lower price in terms of EEC units of account. Since the threshold price does not change, the common external levy automatically increases.