Portugal - The prospects for external trade in light of EEC entry with special reference to agriculture

FILECOPY Report No. 4109-PO Portugal The Prospects for External Trade in Light of EEC Entry-with Special Reference to Agriculture March 3, 1983 Country Programs Department I Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Until) 1971 1 US Dollar = 28.323 Escudos 1 Escudo .037 US Dollar 1972 1 US Dollar = 27.011 Escudos 1 Escudo = .037 US Dollar 1973 1 US Dollar = 24.673 Escudos 1 Escudo = .041 US Dollar 1974 1 US Dollar = 25.408 Escudos 1 Escudo = .039 US Dollar 1975 1 US Dollar = 25.553 Escudos 1 Escudo = .039 US Dollar 1976 1 US Dollar 30.227 Escudos I Escudo = .033 US Dollar 1977 1 US Dollar 38.227 Escudos 1 Escudo = .026 US Dollar 1978 1 US Dollar = 43.940 Escudos 1 Escudo = .023 US Dollar 1979 1 US Dollar = 48.924 Escudos 1 Escudo = .020 US Dollar 1980 1 US Dollar = 50.062 Escudos 1 Escudo = .020 US Dollar 1981 1 US Dollar = 61.546 Escudos 1 Escudo = .016 US Dollar 1982 1 US Dollar 78.545 Escudos 1 Escudo = .013 US Dollar FISCAL YEAR January - December This report is based on the findings of a mission which visited Portugal between March 1 and March 19, 1982. The mission comprised A.R. Roe (mission leader), P. Lazar (general economist), E. Lutz (trade specialist) and E. Neville-Rolfe (consultant). The report was discussed with the Government during a mission, December 6-8, 1982, led by Mr. R. Chaufournier, Vice President, and comprised of Messrs. M. S. Aiyer (Division Chief), F. Colaco (Senior Economist) and P. Lazar (Country Economist). The report has been updated by P. Lazar.  FOR OFFICIAL USE ONLY ABSTRACT Although Portugal's recent overall growth performance of exports (1970-1981) does not match that of the leading newly industrialized coun- tries--namely Singapore, Taiwan and the Republic of Korea, it compares well with the average of a group of eight major ones including these three. However, given the low coverage of exports as well as unfavorable terms of trade developments, the merchandise trade deficit has increased by almost ten times during the same period. The most important shifts in the commodity composition of trade have been a radical increase in the fuel component of imports, a serious decline in the share of food products in-total exports, and an increasingly important role for cereal imports. While the EEC has become Portugal's main trading partner, a large share of imports is denomi- nated in dollars (oil and cereals, mostly from the US). At present, Portu- gal's external position is seriously in deficit and external debt is an increasingly important problem. Whatever stabilization program is introduced during the next year or so, exports will probably need to grow at twice the rate of growth of imports, if the external payments and debt situation is to be kept under control. Portugal's entry into the EEC, possibly in 1985, will probably affect trade in manufacturing in three ways. First, it will result in a number of changes in tariff arrangements and will expose local industries to increased competition from external sources. Because of the extensive tariff dismantling which has already taken place during the 1970s, this effect seems unlikely to be quantitatively significant in an aggregate sense, except for the trade deficit with Spain which could increase. Second, the progressive removal of Portugal's extensive system of non-tariff barriers to trade will cause potential problems for some industries such as garments. Third, the liberalization of the EEC's restrictions against Portugal's own textile exports can certainly result in an increase in trade. In many other areas of manufacturing EEC membership by itself is likely to have less impact on trade performance than many of the restructuring measures which would be advan- tageous whether or not Portugal were to join the EEC, including those aimed at fostering new direct foreign investment. Portugal's acceptance of the Common Agricultural Policy (CAP) of the EEC will have a profound effect on pricing, institutional support measures, the protection against external competition and the access to external markets. The results of a commodity by commodity analysis conducted in this report indicate that the outcome for agricultural trade up to 1990 will be dominated by two main elements; a continued and substantial rise in the cereals deficit and an offsetting and impressive improvement in the balance of nonedible (mainly forest-related) products. The report concludes that subject to many assumptions and necessary policy measures Portugal could achieve substantial improvement in the agricultural trade balance during the early years of EEC membership. In addition to a competitive exchange rate, these policy measures include, above all, a strengthening of Portugal's extremely weak extension services and actions to begin to develop the insti- tutions (such as producer associations) necessary for Portugal to draw full benefits from the EEC's complex arrangements for agriculture. For the moment, there is little indication that the effort devoted to this range of issues is anything like commensurate with the scale of the problem. This document has a-restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  I  PORTUGAL - THE PROSPECTS FOR EXTERNAL TRADE IN LIGHT OF EEC ENTRY-- WITH SPECIAL REFERENCE TO AGRICULTURE Table of Contents Page No. COUNTRY DATA SHEET SUMMARY AND MAIN CONCLUSIONS .......................................... i-iv I. Past Trading Performance ........................................ 1 A. Introduction ................................................ 1 B. Main Trends and Commodity Composition ....................... 2 C. The Geographical Pattern of Trade ........................... 7 D. Trade Performance Relative to Other Newly Industrializing Countries ............................. 11 II. Prospects for Manufacturing Trade in the Light of EEC Entry ..... 13 A. Tariff Dismantling .......................................... 13 B. The Entry of Spain .......................................... 14 C. Removing Non-Tariff Barriers ................................ 15 D. Textile Exports ............................................. 15 E. Further Aspects of the Prospects for Manufacturing Exports ....................................... 16 III. The Prospects for Agricultural Trade ............................ 18 A. Introduction ................................................ 18 B. The Main Components of Agricultural Trade ................... 21 C. EEC Accession and the Prospects for the Agricultural Trade Balance .................................. 24 D. Policy Implications ......................................... 27 ANNEX I - EEC Accession and Agricultural Imports ...................... 35 ANNEX II - EEC Accession and Agricultural Exports . . 50 ANNEX III - Prospects for Increased Cereal Production ................. 65 ANNEX IV - Portugal's Revealed Comparative Advantage . . 70 ANNEX V - EEC Accession: The Status of Negotiations .................. 77 STATISTICAL APPENDIX .................................................. 84   Page 1 of 2 COUNTRY DATA - PORTUGAL Area Population Density (1978) 92,072 sq. km 9.88 million 107.3 per sq. km Po_pulation-Characteristics (1979) Health (1977) Crude birth rate 18.2 Population per physician 698 Crude death rate 9.6 Population per hospital bed 187 Access to Safe Water Access to Electricity (1970) Percent of Population 65.0 Percent of population 88.0 Nutrition (1977) Education Calorie intake as % of Adult literacy rate (1976) 70.0 requirements 126.0 Primary school enrollment ratio 117.0 Per capita protein intake (1978) (grams per day) 83.0 GNP PER CAPITA: US$2,370 /a GROSS NATIONAL PRODUCT IN 1981 ANNUAL RATE OF GROWTH /b (Current) (% constant prices) US$Million % 1974-77 1979 1980 1981 1982 GDP at market prices 23,610 100.0 2.6 4.5 5.5 1.8 3.0 Total Consumption 21,843 92.5 2.3 2.6 4.5 4.1 2.8 Gross Domestic Investment 6,410 27.1 -1.5 -2.1 14.7 5.1 3.3 Export of Goods and NFS 6,251 26.5 -3.7 27.3 8.3 -1.5 0.0 Imports of Goods and NFS 10,894 46.1 -4.7 7.8 12.8 6.2 3.1 Gross Domestic Saving 1,767 7.5 5.5 2.3 7.5 -4.0 6.2 OUTPUT, EMPLOYMENT AND PRODUCTIVITY IN 1981 Value-Added /b Labor Force (1981) Value-Added per Worker USTMillion % Million % US$Million % Agriculture 2,529 11.9 1,090 27.3 2,320 43.5 Industry 8,002 37.6 1,063 26.6 7,528 141.2 Construction 1,393 6.5 383 9.6 3,637 68.2 Services 9,369 44.0 1,458 36.5 6,426 120.5 Total/Average 21,293 100.0 3,994 100.0 5,331 100.0 GOVERNMENT FINANCE (1981) Escudos Bln. % of GDP Current Receipts 447.1 30.7 of which Central Government 259.1 17.8 Current Expenditures 527.3 36.3 Current Surplus/Deficit -80.2 5.5 Capital Expenditures 76.5 5.2 Overall Surplus/Deficit -166.2 11.4 /a Most recent estimate. /b Based on Banco de Portugal statistics.  Page 2 of 2 MONEY, CREDIT AND PRICES 1977 1978 1979 1980 1981