Valentin COJANU

The Integration Game: Strategic Interaction in the Process of the EU Enlargement

Redactor: Coperta: Adriana POPESCU

Tehnoredactare computerizat: Luminia DRAGOMIR

Descrierea CIP a Bibliotecii Naionale a Romniei COJANU, VALENTIN The Integration Game: Strategic Interaction in the Process of the EU Enlargement / Valentin Cojanu Bucureti: ISBN 973-

Valentin COJANU

The Integration Game: Strategic Interaction in the Process of the EU Enlargement

ISBN 973Copyright Editura AGER Economistul, 2004

Autorul poart ntreaga rspundere moral, legal i material, fa de editur i tere persoane, pentru coninutul lucrrii.

To my wife Aura, for her generosity, so lovely shared

CONTENTS List of Tables ................................................................................... List of Figures.................................................................................. Foreword.......................................................................................... Acknowledgments ........................................................................... Abstract............................................................................................ I. Introduction ................................................................................. II. Problem statement ..................................................................... A. Rationale for the research........................................................ B. Research questions and objectives .......................................... C. Scope and limitations of the study .......................................... D. Definition of terms .................................................................. III. Review of the Literature......................................................... A. Overview ................................................................................. B. Discussion .............................................................................. 1. Objectives of integrating countries: Theoretical perspective.......................................................................... 2. Objectives of integrating countries: Empirical arguments ........................................................................... 3. Constraints .......................................................................... 4. Preferences and strategic structures ................................... 5. Summary ............................................................................ IV. Research methodology ............................................................. A. Background on Community decisional mechanism ................ B. Situational variables and constraints ....................................... 1. The international level of dependence ................................ 2. The national level of independence .................................... 3. The issue area of interdependence ..................................... C. Instrumentation ....................................................................... D. Data collection ........................................................................ E. Data analysis ........................................................................... V. Bargaining power: resources and constraints ......................... A. The agriculture dossier ........................................................... B. Bargaining position of the European Union ...........................

1. Uncontrollable sources ........................................................ 2. Controllable in the long-run (CLR) sources........................ 3. Controllable in the short-run (CSR) sources ....................... C. Bargaining position of Poland ................................................. 1. Uncontrollable sources ........................................................ 2. Controllable in the long-run (CLR) sources........................ 3. Controllable in the short-run (CSR) sources ....................... D. Bargaining position of Romania.............................................. 1. Uncontrollable sources ........................................................ 2. Controllable in the long-run (CLR) sources........................ 3. Controllable in the short-run (CSR) sources ....................... E. Summary.................................................................................. VI. Formulation and solutions of strategic negotiations.............. A. Assessment of issue bargaining power.................................... 1. Enacted power for EU ......................................................... 2. Enacted power for Poland ................................................... 3. Enacted power for Romania ................................................ 4. Summary ............................................................................. B. Assessment of general power and institutional stability.......... 1. A qualified view on general power ..................................... 2. Institutional stability............................................................ C. Outcomes of negotiations ........................................................ 1. The EU-Poland strategic game............................................ 2. The EU-Romania strategic game ........................................ 3. Discussion ........................................................................... D. Anticipation of objections ....................................................... 1. Objections on methodology................................................. 2. Objections on analysis......................................................... VII. Conclusions .............................................................................. Bibliography .................................................................................... Appendix A ...................................................................................... Appendix B ...................................................................................... Appendix C ...................................................................................... Appendix D ...................................................................................... Index.................................................................................................

List of Tables Table 1. A comparative view of the non-traditional gains from integration ........................................................................... Table 2. Estimations of relative decisional power within the enlarged EU Council........................................................... Table 3. Estimates of indices of institutional stability ...................... Table 4. Negotiating agenda of the EU-Poland game ....................... Table 5. Negotiating agenda of the EU-Romania game.................... Table 6. Overall view on the possible outcomes when the EU plays PD ............................................................................. Table 7. Estimations of payoffs with Agricultural Trade Policy Simulation Model (ATPSM)................................... Table 8. Overall view on the possible outcomes when the EU plays 'issue weak'.......................................................................... List of Figures Figure 1. Theoretical model of bargaining power in strategic negotiations....................................................................... Figure 2. A generic game of strategic interaction ............................. Figure 3. Deduced constrained preference order from Rows perspective ........................................................................ Figure 4. Deduced symmetric ordinal games.................................... Figure 5. The EU-Poland strategic game: Representation ................ Figure 6. The EU-Poland strategic game: Solutions ......................... Figure 7. The EU-Romania strategic game: Representation............. Figure 8. The EU-Romania strategic game: Solution ....................... Figure 9. Simulation of multilateral strategic negotiations in agricultural trade with cardinal payoffs ............................ Figure 10. Simulation of multilateral strategic negotiations in agricultural trade with ordinal payoffs..............................

FOREWORD
he Romanian economic literature needs realism, indepth analytical treatment, and genuine, distinctive approach on behalf of the researchers with intellectual zest for multi-disciplinary study. It is for this reason extremely promising to see a new generation of economists who stand out on grounds of both solid methodological design and insightful alternatives to the established body of economic knowledge. The study on The Integration Game anchors well in the parameters of an economic analysis of such a caliber, by a courageous handling of factual issues, conflicting arguments, and demanding dilemmas in a field of research, which apparently has little new to discover. The investigation begins with a survey of game-theoretical contributions with application to international economics and, particularly, international trade, just to make clearer the point that the analysis of games of strategy is particularly suited to offer perceptive venues for research on the topic of integration. The author's choice is for the subject of negotiations in the process of the EU enlargement, which conveniently fits a twofold objective of investigation: to adapt established models of analysis to the practical needs of understanding the benefits a country may reasonably expect to derive from negotiations.

An elaborated and thoroughly searched section on the literature sheds light on those key contributions, which could enrich the practical meaning of strategic negotiations in the context of integration. The reader is thus invited to extend its intellectual journey beyond the informational-rich text and actively take part in the debate. The lead topic evolves around the strategy dimension. It is in this key that investigative questions are proposed and hypotheses formulated to design an arguably perfectible research methodology. It would hardly be more appropriate to make thus a perfect match between an objective analysis and a subjectively imposed need to deal with such sensitive issues as the expected results of negotiations, the political nature of integration process, or the intricate web of interests in the agricultural dossier. To stick with that central theme and still reach valid conclusions based on a substantive investigation, an inevitable trade-off with relatively marginal matters has to be decided. That hardly has any impact on the flow of arguments. Rich developments of concepts, as well as a comprehensive review of literature position the study on an appropriately equidistant research path toward diverse approaches, which have been making up the theory and policy of economic integration for the last 50 years, including the provoking debates on its macroeconomic effects. A point in case is the analysis of the objectives the negotiating countries pursue on the way to integration, and particularly in that setting which characterizes the European process. The author remarks the good strand of researches, which attempted to build support in favor of the benefits the theory on integration claims to exist. The book excels at this point, as it aims at assessing comparatively various results of the quantitative

analyses and accompanying rationales about parameters used to ascertain the likely impact of integration on negotiating countries. Along the presentation, advantages and disadvantages of various perspectives are contrasted in order to get a clearer picture of the economic evolutions and a better understanding of the relationship between political conditions and economic behavior. Besides proposing an interesting view on past works, the book is however about original research. The design of methodology is constructed on the rationale that the issue of the Central and Eastern European Countries' accession to the European Union was not actually the object of negotiations. A whole chapter tries to argue instead that the terms on which negotiations proceeded were depended on an interactive relationship of decision-making processes, policy developments, and institutional settings. A deconstruction analysis is carried out to observe potential and real reactions based on both factual evidence, and findings from the literature. Results of negotiations are simulated given specific constraints and existing resources of bargaining power. The rigorous treatment combines with social and political details, which eventually prove decisive to experiment the negotiating behaviors of both the EU, and the two candidate countries Poland and Romania considered for this application. What the reader eventually has consists of various scenarios as to the strategic dimensions of negotiations, which is probably the most challenging part of the analysis. The way is conceived and researched, this book may be confidently positioned as a reference paper, which consistently

voices those reasoned and realistic arguments of the economic literature on European economic integration. It is a worthwhile contribution of Valentin Cojanu to that analytical thinking, which rests on such premises as elaborated style, attention to methodology design, commendable conceptual developments, and reliable argumentation. Even the reader, which is not familiar with the conventional theses of economic integration, may still find a convincing path to understanding negotiations in international relations, all this with a sense of scientific investigation and meaningful conclusions. In other words, he is about to read a book with capital "B".

Professor Dr. Dumitru Miron Academy of Economic Studies Bucharest

Acknowledgments
he work to this study has benefited from encouragements and suggestions kindly addressed by friends, professors, and family. Although the author retains the sole responsibility for the ideas and commentaries expressed therein, recognition for the valuable support received is certainly due. The quality of the investigation was greatly enhanced by the dedicated supervision of Dr. Jerry Haenisch, Chancellor of Preston University. The author was particularly privileged to have kept with him a professional working relationship during the years spent on this research, a source of advice, which finally proved so constructive. For their comments on earlier drafts of this study, the author remains grateful to Professors Mihai Korka and Dumitru Miron from the Academy of Economic Studies in Bucharest. They helped the text improve its readability and convey a more comprehensible message. This book makes inroads into unexplored themes of research in Romania, but this assertion ought to sound like a confession

rather than an ambition. The point is that substantial time was spent with collaborators on finding out a relevant approach for Romania on integrating game theory and enlargement negotiations. It is thus worth mentioning that many working hypotheses took shape in the framework of Pre-Accession Impact Studies Programs at the European Institute of Romania in Bucharest. The intellectual and constructive atmosphere created during the numerous workshops and conferences, which accompanied that process, has proved uniquely inspiring.

Abstract

his study presents an adapted model of 2 2 games of strategy to provide arguments for understanding the various levels of interaction between the parties during negotiations and attempts to identify the strategic structures of the integration process of the CEECS into the EU. The arguments are elaborated against the background of negotiations on agricultural trade issues, whose conclusion became effective also for the last two candidate countries Bulgaria and Romania in June 2004. The research model builds on the existing analytical framework developed in the works of Aggarwal and Allan, Aggarwal and Cameron, Brams and Kilgour, Conybeare, and Leaps, and Grigsby. The method considers three levels of interaction dependence, independence, and interdependence and gathers each partys strategic capabilities in a game-theoretical context with the help of three variables: institutional stability; overall power; and issue bargaining power. The findings present a detailed analysis of bargaining power and consider the predicted solutions to negotiations. Bargaining power is transformed from potential to effective influence a party can wield during negotiations by transformational factors. Analysis

of these factors is illustrative of the bargaining strength on the issue and helps square the determinants of strategic interaction. The models predictions closely follow the results of negotiations in every significant detail. Moreover, the overview tableau of possible solutions helps assess better the gains and losses from negotiations given the interplay of interests.

I
Introduction
ehind the Iron Curtain, the Central and Eastern European Countries (CEECS) have long aspired to become part of the civilized world, in the sense that they were seeking a more prestigious economic status and the fundamental right to share the universal libertarian values. At the time the political openness had arrived at the beginning of the 1990s, Western Europe, with the European Union (EU) at its core, ideally represented the object of their veneration. Geographic proximity, historical tradition, and relatively close economic ties all indicated that a negotiated rapprochement between the two parts of Europe would naturally come next. This imperative eventually led to the conclusion of legal arrangements between the EU and individual CEECS - Poland, Hungary, the Czech Republic, Slovenia, Estonia, Bulgaria, Romania, Slovakia, Lithuania, and Latvia - in the form of the Europe Agreements (EAS), and the accession negotiations started in 1998. With these initiatives, the EU embarked on the fifth wave of enlargements since its founding in 1957. This process proved different from the past especially because it simultaneously had to confront a large number of candidates and to consider their evident development gaps vis--vis the EU. The income differences are prominent whether they are measured at official exchange rates or at purchasing power parities; whether the comparison is made with

the EU-15 average or with the lowest ranked EU-15 member states. As for the countries this study particularly considers, when negotiations began the income level in Romania (at official exchange rates) was 8% of the EU-15 average and ca. 17% of the levels in Greece or Portugal, the less developed EU countries. For a relatively wealthy and developed CEEC as Poland, the corresponding numbers were 20% and ca. 40% (Quaisser and Hall 4). The present enlargement process stands out for another reason as well: the CEECS are taking on a far more complex body of legislation than did previous applicants. The EU institutional accomplishments of the Single Market and European Monetary Union, as well as its policy developments in the field of judicial and foreign affairs significantly stretch the legal and technical capacity of the applicants as they are starting with much more simple institutional framework at national level. It is only the eastward enlargement, which formally makes the adoption of acquis communautaire the whole body of the EU legislative acts, along with secondary legislation and policies derived thereof mandatory by accession. In annually issued Regular Reports, the EU identified 31 chapters of the acquis, covering virtually all fields of Community governance, such as free movement of production factors, education, statistics, judicial system, property rights, international relations, competition and industrial policies, and, in chapter seven, of particular interest for this study, agriculture. Agriculture is considered to be a particularly sensitive subject because agriculture in the CEECS is simply much more important, in terms of its share in production, employment and foods consumption, than in the EU on average, while its impact on every-day situations of life and work is crucial for countries like Romania and Bulgaria. The CEECS would constitute 22% of the population of the enlarged EU; would contribute to the GNP, and thereby to the budget, only around 4%; would increase agricultural area of the EU by 45%; and would nearly double employment in agriculture. By consequence, according to figures of the European Commission (EC), the enlarged EU will be more agricultural than the EU-15 (Analysis of the Impact 15). While the EU agricultural

exports to these countries rose substantially after 1990, the CEECS exports to the EU only increased slightly, making most of those countries net importers of agri-food products from the EU (European Commission Regular Reports; Frohberg and Hartmann). As these considerations suggest, unveiling the interests at stake is expectedly a different matter for the two partners. While in the West the emphasis is put on maintaining a desired level of rural development, along with the privileges acquired historically for the farmers, in the East concerns about the viability of agriculture as an economic activity take the leading role in shaping a certain position in negotiations. The constraints of the acceding countries are mostly due to a long history with central-planned policies. Although favorable land endowment and climatic factors should have sharpened their comparative advantages in agro-food business, systematic neglect of this industry evolved in precarious regional development. Hallets study reports how the regions dependent on agriculture prevalently rank among the most socially vulnerable. One notable result emphasized by Pouliquen is that the contribution of the semisubsistence sector to the total agricultural production of the ten CEECS is at least in the order of half against approximately 20% in the EU (41, 63). The privatization and restructuring processes of the 1990s have not succeeded in revitalizing the sector in spite of continuing convergence of average farm prices towards Community levels as reported in the literature (e.g. Pouliquen 15; European Commission, Agricultural Situation and Prospects 31). Low productivity levels, estimated by the EC at around 11% of the EU level (Agricultural Situation) and increased fragmentation of production in the form of individual holdings reported by several other studies (e.g. Josling and Tangermann; Pouliquen) have placed considerable restraints on the agriculture development. An immediate consequence of the convoluted evolution of agriculture was the near absence of farm lobbies at the outset of the negotiating process, a time when all efforts and energy were directed to re-introduce the elements of the market economy, such as land reform, price liberalization or the opening-up of foreign trade. A partial exception was Poland, where private ownership

prevailed in the agricultural sector during the communist regime (Note on Polish Agriculture) and allowed thus for a continued and more assertive defense of private interests. The conventional analysis represented by the theory of economic integration helps in explaining the rationale underlying negotiations set in such a context, but leaves aside the strategic considerations inherently associated with that process. As the way negotiations are structured and the inherent conflicting nature of dossiers like "agriculture" eloquently shows the analysis of the process of strategic interaction proves essential in understanding the economic terms on which the integration negotiations proceed and conclude. This study presents an adapted model of 2x2 games of strategy to provide arguments for understanding the various levels of interaction between the parties during negotiations and attempts to identify the strategic structures of the integration process of the CEECS into the EU. Constructs are accordingly identified from game theory and economic theory and integrated. The research model builds on the existing analytical framework developed in the works of Aggarwal and Allan, Aggarwal and Cameron, Brams and Kilgour, Conybeare, and Leaps and Grigsby. The arguments are elaborated against the background of the interaction pattern of European Union enlargement process and the issue of agricultural negotiations, whose conclusion became effective also for the last two candidate countries Bulgaria and Romania in June 2004. The strategic analysis of negotiations addresses first the theoretical framework in which to build a model of bilateral negotiations; then, the model is used to test and predict the possible outcomes of negotiation on specific issues in general, and specifically for the purpose of this study in relation to negotiations on agriculture. Resemblance with other classes of interactions, e.g. debt rescheduling, enforcement of international agreements, and security aspects, indicates the option of considering 2x2 games in an empirical context, an issue that is developed in the section on methodology. As the CEECS negotiated separately their accession, a choice had to be made as to the most appropriate case(s) to consider. The option was to include an application of the model on

Poland and Romania, the largest agricultural countries in CEECS according to data on agricultural land and the contribution of agriculture to GDP. The findings present a detailed analysis of bargaining power and offer predicted solutions to negotiations for the two cases considered in the application. Bargaining power is transformed from potential to effective influence a party can wield during negotiations by transformational factors. Analysis of these factors is illustrative of the bargaining strength on the issue and helps square the determinants of strategic interaction. The initial presumption that the cases of both Poland and Romania would provide adequate inputs for the analysis proved right. The model's predictions closely follow the results of negotiations in every significant detail. Moreover, the overview tableau of possible solutions helps assess better the gains and losses from negotiations given the interplay of interests and so makes the methodological contrast with conventional approaches to integration more visible. A concise introduction to the subject of strategic negotiations is provided in Chapter II. Despite the major achievements in the economic research, the theme proposed here still finds at the junction of conventional with innovative approaches to the study of economic interaction when several countries integrate. Chapter III on the literature seeks to make evident these various and often conflicting intellectual strands and to show how they resonate with the present research. In Chapter IV on methodology a model is proposed to find solutions of strategic negotiations. The method considers three levels of interaction dependence, independence, and interdependence - and three corresponding variables - overall power, institutional stability, and issue bargaining power to frame each party's strategic capabilities in a game-theoretical context. This study's findings are grouped in two chapters: Chapter V analyzing bargaining power and Chapter VI presenting the solutions to negotiations. Before concluding, a section on anticipation of objections attempts to identify clearly the range of situations to which the proposed model applies. Chapter VII ends this study with conclusions and suggests implications for further application of games of strategy in negotiations.

II
Problem statement
A. Rationale for the research he choice of an appropriate approach to the subject has been eased by a considerable scholarly tradition. The research on explaining strategic interactions by means of gametheoretical concepts has made significant headway for long. From the early development of the theory in the interwar period, the approach gained progressively in acceptance until its virtual dominance of economics (Foss 6) around the end of the 1980s. The explosive dominance of game theory as an analytical tool has made a wide array of disciplines, such as industrial organization, labor economics, public finance, monetary policy, economic history, law, marketing, political science or sociology, accept and explain behavior of companies, governments or groups of actors in terms of strategic options. In the field of international trade alone, the interest stretches over an ever more expansive range of topics, from games of trade liberalization (McMillan, Game Theory; Conybeare; Kennedy; Patterson) or settlement of disputes (Btler and Hauser) to the new theories of strategic trade policy (Benchekroun et al.; Abbott and Kallio) or politics of trade (Grossman and Helpman; Helpman). At the same time, arguments emerging from adjacent fields, such as economic development (Wolkoff; Grabowski), economic history (Greif), institutional economics (Juli), political science (Milner and Rosendorff), industrial organization (Graham), international relations (Allan and Schmidt) all contributed to adding new

insights, and evidently broadened the view over the international trade issues against a unified background. One of the findings this rich scholarship proposes is that little refinement may be expected for both trade theory and mathematics of games; instead, the main advantage of the new approach has proved to be an improved and practical understanding of how states and firms wield commercial policies when their interests interact. The work of Schelling has the merit of both pioneering the strategic analysis of interdependence among nations and emphasizing the risk of misappropriation of game theory for understanding the proper meaning of decision-making processes in situations of conflict. He remarks: We change the character of the game when we drastically alter the amount of contextual detail that it contains It is often contextual detail that can guide the players to the discovery of a stable or, at least, mutually nondestructive outcome. We have to recognize that the kinds of things that determine the outcome are what a highly abstract analysis may treat as irrelevant detail (162). What makes this approach the more so problematic is its versatility in yielding provoking results even if the texture between theory and economic evidence is somewhat loose. Economists must confront a theoretical construct imported from mathematics that has its own laws and grows as such autonomously. Snidal conceptually presents that sort of dilemma in the following statement: To apply the deductive power of game theory directly, we must tighten up correspondences between empirical situations and game models, and separate assumptions from predictions. As we do this, the model and theory will provide a guide to relevant empirical evidence, just as the evidence will provide a guide for evaluating and revising the model (36). Additional insights may be found in the papers of Jervis and Kreps, who remark that the flawless logic of different game models may often run counter common intuition, or worse, be mostly invalidated by experimental research. Caves also considered similar concerns, but only recently Ghemawat (Games) took on the task to investigate the predictions of game-theoretic models. His choice of cases makes sufficiently clear that some competitive

moves are well grounded on inside information about rivals internal organization or their muted strategic plans, which renders futile the use of econometrics techniques in predicting the outcome of the game. A series of other papers (e.g. Brandenburger; McGahan) establishes the tradition of looking for strategic aspects of competition amenable to be treated as games, and then extracting the rationale behind the interaction by means of a suitable formal treatment. Instead of assembling game models around some typologies of games or situations, there is this time a focus on the peculiarity of the case, with a correspondingly increased contribution of managerial insight. In observance of these precautionary references to methodology, this study presumes that the search for the empirical assessment of bargaining outcomes should specifically lie at the core of integration negotiations, and that it should appropriately make use of insightful and practically relevant techniques. The value of the proposed research framework thus predominantly rests on both the structure and form of the arguments. That invites the researcher to an analytical work balanced between the specifics of how the outcome actually comes about and the generalizations of the formal model. While the former choice is closely suggestive of the contextual detail, the latter rests on normal representations of game theory. An early example is the Conybeare's work, which seeks for explanatory factors of commercial dealings in an economic context where states purposefully act to maximize their welfare through trade and do that by trying to understand the other states strategies. He favors a mixed approach thereby game theory, political science, history and economics make up a common theoretical background. On the whole, it seems that, although the analysis may weigh differently the share of contextual detail, according to the specific research objectives, there are at least two components, which ought to validate the use of game method. First, the resembling logic of models and reality should not be taken for granted. The more the analysis aims at meeting some practical requirements, such as decision rules or strategic plans, the more intensely the logic of competitive assessment should guide the

investigative questions. A higher degree of abstractness would, of course, reverse the balance, and ascribe the formal logic to a more central role. Second, wherever the logic of the interplay would stem from, it must explain the competitive behavior in a predictable way. Research, which is careful both of economic detail and systematic investigation may usually achieve this objective through formation of relevant classes of empirical evidence. It is for this reason that good part of the works dealing with the applicability of game theory to economics (e.g., McMillan, Game Theory; Gibbons; Rasmunsen; Osborne and Rubinstein) is dedicated to several established sets of economic games. The rigor of such formal treatment eventually is the ingredient, which lays the foundations for further research, whatever practical goals the analysis may have. The case of integration negotiations offers various instances of what a practical purpose could stand for. Some papers (e.g. Grossman and Helpman) simply assume a matter of choice between preferential trade agreements (PTAS) or no other alternative. Other models (e.g. Whalley) are constructed with nations acting as welfare-maximizing players for its representative consumer. In a different line of argumentation, authors like Conybeare (13) or Baldwin (67) consider more realistic to direct the analysis to the process in which the parties adopt decision rules when they face strategic options. Basic economics draws attention to the fact that there is an inherent conflict between national and private interests: lowering barriers at home results in increased competition from abroad and hence lowered firm profits. Given these various treatments, the strategic perspective on the integration process poses the problem of research design so that the investigation reveals the underlying causes of conflict. Before the next chapter takes up this task, preliminary research guidance takes to the center stage the cautious approach towards integrating the individual case into the generic model. The analysis of strategic aspects of integration negotiations is conveniently apt to make use of game theory, but the procedure for analysis is peculiarly dependent on the research objectives.

B. Research questions and objectives If research is conditional upon the particular context of negotiations, the negotiation process itself is influenced by a set of variables, which models the strategic interaction. One of the objectives of the study is thus to define and justify these variables as determinants of negotiations in the accession process. The issue of integration between groups of countries with dissimilar economic potentials brings inevitably into debate strategic considerations. Not only does the development gap make the negotiating agenda arduously disputed because of different representations of gains, but other contiguous matters as well, such as economic security, viability of the nation-state, and disruption of the social order, raise vital questions on the way to integration. The agricultural dossier of the EU enlargement suits particularly well in this picture because of the diversified nature of its conflicting topics. A first hint is inferred from nuances of its importance: the negotiations over agriculture has been described as a political landmine, implying large conflicts of interest (Gacs and Wyzan), but nevertheless a win-win project, that, if successful, will leave no losers by the wayside (Fischler). The latter consideration, which aptly belongs to a former EU Commissioner for agriculture, encapsulates the rationale for an analysis of the strategic aspects of negotiations: each party aspires to a winning position in rather improbable terms of what success may be taken for. Because the interplay of interests is precisely based on these different representations of the terms in which negotiations are to be concluded, the analysis proposed by this study is required to shed light on the underlying determinants of possible outcomes and to suggest with anticipation improved ways of conduct. The interaction between nation-states is then modeled in classes of games or strategic structures of interaction on the basis that the incentives of each party are revealed by their behavioral stance, while their negotiating agenda is either explicitly or implicitly formulated in official documents, historical contexts or publicly voiced statements. It is this attempt, which makes the game-theoretical construct necessary because both behavior and

negotiations are predominantly based in the integration process on the interplay of expectations. C. Scope and limitations of the study The debate on negotiations regarding the integration process of the EU has been enriched from a considerably large variety of analytical perspectives. As previously suggested, the economics of integration seems particularly suited to engender cases of strategic integrations. The paper consequently limits its scope to those aspects of understanding strategic responses in an interactive context. Attention is particularly laid on the building blocks of the logic of choice in situations that involve rivalry. The way game theory facilitates a better design of strategic behavior, and, reciprocally, how negotiation moves can be thought of as part of a game are the guidelines of the present investigation. Indeed, a foray into the governments behavior given the challenges of integrating countries with very different economic potential will try to highlight possible strategic policy interrogations. Because of this narrow framework and practical objectives of the analysis, important aspects of integration negotiations have been inevitably left aside. In the strategy realm, a minimal list would include such topics as: time sequence of negotiations; choice of productive locations; spread of financial risk; and market entry. The game-theoretical literature on integration also takes account of problems like voting power indices or influences from pressure groups, aspects to which this study does ascribe explanatory power even if the focus here shifts on a hopefully more encompassing range of determinants. The interest is to focus more on breadth than depth of the analysis; to enlarge the perspective on integration is important in so far as the underlying analytical purpose rests on practical considerations. The analysis nevertheless stops short of formalizing the negotiation procedure in the sense Binmore suggests, i.e. how to conduct the negotiations under all possible eventualities and how finally to choose a strategy contingent on the course the negotiations took. Although there are solid theoretical references, they are used in so far as they appropriately set out the

investigation; the issue-specific aspect of negotiation is thought essential as to the contextual detail and consequently left to further, analytically renewed game-theoretical bargaining analysis. D. Definition of terms The strategy and strategic words prove to be remarkably versatile in the relevant literature. For example, Mintzberg et al.'s exhaustive search for schools of strategy (24-5) finds distinct ten interpretations of the strategy process but none relates directly or indirectly to games of strategy or situations where the choices of two or more rational decision makers together lead to gains and losses for them (Krishna 1). The topic of negotiations as focus of research shares a similar fate. Behavioral theories are very often considered to be able to offer the proper analytical framework to begin with. The application of game-theory concepts to a wide range of research problems has had the adverse result of an innovative terminology, which in some instances bears little semblance of its original mathematical meaning. This study compounds the problems of terminology by making reference to strategic negotiations. It is for these reasons that a review of the meaning of concepts, which this analysis starts upon, becomes necessary. Binmore presents the game-theoretic approach as a descriptive (vocabulary and basic ideas) and analytical (formal tools) use of game theory. It enables quantitative predictions, as well as qualitative insights but only to the extent the study decides on what aspects of the situation are of particular interest to the research. From this perspective, the research design is to a lesser extent constrained by the formal model, and thus basically rests on the study objectives. It is increasingly accepted the argument (Schelling; McDonald; Branderburger and Nalebuff) that the economic contexts are amenable to analysis of games of partial conflict, i.e. variable-sum games, in which the players preferences are not diametrically opposed. A strategic process may accordingly be thought as the opposition of the interests of the players in an interdependent process whose outcome may involve a situation of

conflict or not. It is not the conflict, which exclusively describes the strategic nature of interaction; the whole variety of anticipated events in association with gains or pay-offs in game-theoretical parlance, whose predictable occurrence depends on the other players' decisions, is instead the proper description of a strategic interaction. A game refers in this study to strategic negotiations conducted within the process of the EU enlargement. It is basically a study of conflict of interest by rational players, devoid of any ethical or behavioral considerations (Binmore 6). Negotiation for the purpose of the study is largely interchangeable with bargaining, although it does not borrow its classical formal interpretation from game theory. Grossman and Helpman provide a definition of bargaining which is significantly closer to the particular situation this study envisages: bargaining can lead to a trade agreement in which each country makes concessions in exchange for desired changes in the policies of its partners (1). Preference is given to the former for describing the strategic interaction, while the latter proves its importance in devising another useful term, bargaining power. According to one of the original definitions, the display of power in bargaining is the ability or skill in duping the other fellow as John Nash initially highlighted (quoted in Binmore). The sense in which the negotiating parties exert bargaining power is certainly deprived in this study of that merchant facet. The inquiry attempts instead to assess the strength of bargaining power by comparing the degree in which the initial demands find themselves in the final results of negotiations and the conditions conducive to that outcome. A mathematical interpretation of bargaining power has normally nothing to add on conditions. This study however embraces both aspects of bargaining power capability to command influence and possibility to behave this way. There is thus promoted a concept based on the exercise of power, which induces learning experiences in the negotiation process.

III
Review of the Literature
A. Overview he topic of beneficial enlargement of an integration structure is theoretically exposed to a large variety of arguments. This review focuses on how both orthodox and unconventional explanations translate into strategic options the negotiating parties may consider. Integration negotiations are typically understood as a continuous process in which countries' preferences for a certain outcome are shaped by constraints originating from three levels. A country's dependence on its partners' decisions and the influence of its domestic politics represent two levels of analysis, which have received considerable treatment in the literature. Lately, arguments on contextual areas of negotiations or the interdependence level have been considered as equally significant for proper understanding of interaction. The use of game-theoretical techniques has evolved as a widely accepted approach of integrating different sources of constrained behavior into analysis. The way parties may conceive under constraints their ranking of the mutually preferable agreements distinctively lies at the core of the bargaining problem. It is thus possible to infer various strategic structures of negotiations and subsequently predict the preferred course of settlement on a specific issue.

B. Discussion 1. Objectives of integrating countries: Theoretical perspective The economics of integration has been traditionally regarded as a theoretical body on the benefits the participating countries enjoy in the form of static and dynamic effects of establishing a free trade area with or without a common commercial policy. Recent research has however challenged this conventional view and added various arguments in explaining why countries seek to negotiate integration agreements (IAS). At a general level, the theory falls short of providing a unified approach to the representation of countries' objectives in an integration game. Some authors (e.g., Snidal 25) find methodologically correct to model nations as goal-seeking actors, while others (e.g. McMillan, Games 77) question the plausibility of the coherence and consistency of such an endeavor. Zrn shares a more balanced view when he dispels the theories of interest formation that assume one fundamental motivation in all states across all issue areas (299). These different perspectives are nowhere better revealed as in the contrasting debate on traditional and nontraditional gains from integration. While the early analysis of Viner has given rise to a remarkably standard terminology to describe the effects on welfare, economists are less convergent toward a similar cohesive approach as to other objectives integrating countries could pursue. In the traditional vein, the central tenet rests on the classical proposition that economic integration creates trade and thus improves welfare by moving participating countries closer to free trade (Markusen et al. 320). The expected benefits should not however be taken for granted. The Viner-inspired research stresses the importance of trade diversion as a possible welfare-worsening effect of an IA. A special case, when trade diversion could either improve or leave welfare unaffected, is illustrated by several studies which account for relaxed assumption on domestic consumption and production patterns (Markusen et al. 315-18; Fernndez 5). Additional research (e.g. Schiff) makes the point of how dependent the

welfare impact is upon the underlying conjectures such as country size, rules of origin, and the likelihood of illegal transactions. The traditional analysis also emphasizes that no alternative trade agreement, including free trade, could make a member country better off in the presence of an optimum tariff (Markusen et al. 318). The argument is based on Johnson's seminal study on tariff retaliation and concerns the foregone opportunity of a large country to improve its income (the terms of trade effect) by imposing a sufficiently small tariff on imports and/or taxing its exports. The picture of the net effects is further obscured if one considers the unequally distribution of gains among the member countries. Some authors (e.g., Helleiner 759; Lindert 187) argue that the integration process disproportionately favors the smaller countries thanks to the larger impact of the new trade opportunities on the structure of their markets incentives. According to some other studies surveyed by Fernndez, there are the economically weaker countries, which supposedly bear the heaviest adjustment burden as a result of their previously larger protectionist structures (5). The dynamic strand of analysis surveyed in the work of Baldwin relegates these results to some marginal importance (9), and underscores instead the overwhelming impact of scale economies and investments on welfare thanks to increased opportunities for growth in a larger market. Casella however cautions against the reliability of theoretical predictions before searching for the actual determinants of market access (23-24). Salvatore escapes the difficulty of providing a clear-cut answer by recommending an indicative list of various presumptions against which countries could judge the attractiveness of the integration choice (293-4). In the light of these findings, the traditional objectives supposedly underpinning IAS appear ambiguous (Schiff and Winters 1; Abrego et al. 3), subject to critical assumptions (Markusen at al. 312-22) or rather of little relevance (Whalley 22). Moreover, the ramifications of economic theories trying to explain integration unexpectedly leave one with predictions that are sometimes diametrically opposed (Reiner 39). These uncon-

vincing results make Abrego et al. conclude that no set of generally accepted propositions regarding their effects has yet emerged to guide policy makers and public officials (2). A positive message emerges instead from the research on nontraditional gains. Countries are now given a more active role in deciding on the terms of an IA. Several studies (e.g., Schiff and Winters 2-6; Whalley 15-20) suggest that the motivating factors should be better ascribed to the externalities accompanying this process, including here military security, credibility of reforms, trade leverage, as well as other non-economic aspects. Table 1 offers a glimpse of the nontraditional gains of the IAS. Although largely overlapping, the wide range of arguments is nevertheless indicative of the sophistication underlying the decision-making process. According to the objectives highlighted by Table 1, bargaining power is seemingly the most pervasive rationale underlying negotiations. The integration context favorably exposes negotiating countries to various opportunities in their search for improved bargaining power. In its simplest form, the exploitation of bargaining power normally involves an exchange of concessions to derive changes in the policies of the partners (Grossman and Helpman 1), but it should not be seen however as an inevitable consequence. Some countries have to negotiate the accession just to be in the position of exercising this possibility (the level playing field option in Table 1), while others are much better positioned in order to impose their own rules (policy autonomy option in Table 1). A dose of caution is therefore to be expected in the case of smaller countries for which Helleiner thinks the access to the integration arrangement is likely to be highly conditioned (780).

Table 1 A Comparative View of the Non-Traditional Gains from Integration*

Whalley Domestic policy reform: by binding a country to the provisions of an international trade treaty, any future reversal of domestic policy reform becomes more difficult to implement. (15) Fernndez Time inconsistency: a country pursues policies that are welfare improving but timeinconsistent, i.e. temptations of surprise trade policy actions when other first-best instruments are unavailable, in the absence of the PTA. (7) Signaling: a country wants to persuade other that certain circumstances, e.g. a liberal type of government, the underlying condition of the economy, do in fact prevail. (15) Baldwin Level playing field: to compensate for the potential loss of relative competitiveness (the threat of not being inside) (71)

Multilateral bargaining power: individual country may have limited leverage in international negotiations, including multilaterally, but if all member countries acted cooperatively in using a common trade policy they would increase their leverage. (17) Guarantees of access: to make access to the larger country market more secure for the smaller country. (17)

Gerrymandering: changing the political boundary of a district tends to change the objectives of the policy makers representing that district. (74)

Insurance: the unfavorable terms of the PTA may constitute a type of insurance premium paid by one country to the other against possible (unfavorable) events. (17)

Voting power: the capacity to influence decisions by forming winning coalitions. (76)

Whalley Strategic linkage: the security arrangements among the integrating countries are better supported by integration agreements. (18)

Multilateral/Regional interplay: the actual or potential use of regional agreements for tactical purposes by countries seeking to achieve their multilateral negotiating objectives. (19)

Fernndez Bargaining power: the transaction costs involved in reaching an optimal negotiating position are reduced by greater coordination of trade policies with respect to third countries. (19) Coordination device: uncertainty is reduced as to who will be the gainers from liberalizing. (20-21)

Baldwin

* This presentation remains faithful to the order of the arguments as originally exposed in the referred authors works.

The argument is used to explain the outward behavior as well. Generally, economists like Fernndez admit a common sense approach based on the belief that the integrating countries should in fact have greater bargaining power combined than separately (19). He proposes a subtle mechanism (coordination device) to explain how integrating countries are effective in making tradeoffs between different policy areas more often at a regional rather than multilateral level (21). As the argument goes, increased transparency due to relatively few participating countries possibly helps substantiate better a wide range of issues - from support for free trade to environmental and labor standards and thus favors the strength of the economic bloc. Some studies observe that IAS could induce participating countries to play strategically against third countries in a noncooperative, tariff-setting game (Abrego et al. 5; Grossman and Helpman 1). McMillan (Game Theory) gives this topic a solid

theoretical background, while Kennedy applies it to real negotiations. The case rests largely on the same hypothesis presumed by the terms of trade argument and is thus as much informative except for the possibility to enter a retaliatory game. Domestic politics interferes with IAS when countries implement reform policies or contemplate partnership with unstable or economically weak countries. The argument has initially emerged from the literature on time-inconsistent policies, which Fernndez describes as that circumstances under which governmental behavior undermines the credibility of optimal public policies (7). According to Hagen, standard solutions to overcome this problem consist in the creation of appropriate institutions and of a track record of consistent policies (35). There is a widespread belief that the integration process is apt at creating an enforceable mechanism including both those solutions (Whalley 16; Helleiner 762), and in general superior than other possible alternatives (Fernndez 10). The commitment to integrate thus credibly provides an agency of restraint on any future reversal of previously announced policies. Countries are assumed to find costs far outweighing the benefits when reneging on reforms explicitly undertaken through negotiations, such as trade liberalization or democratic change. The security issue has accompanied the debates about the importance of trade at least since Kant famously asserted in 1795 that commercial ties would reduce the risk of European wars (qt. in Schiff and Winters 1). Schiff and Winters assume not much differently from the original Kantian discourse that the larger the level of imports, the lower the likelihood of a security threat among the partner countries. They conclude, perhaps unsurprisingly, that an economic bloc provides strong incentives in the form of security dividends to non-member countries (28-29). Other researchers put more emphasis on contextual details to show that integration negotiations purport to a complex balance of interests in order to inhibit any danger of conflict. Serdar describes economic alliances as groups of states seeking to improve their security in front of others by cooperating (3). But even in economic terms, trying to seek refuge from any potential protectionist measure should be thought as a realistic objective especially for a

small country (Whalley 17; Fernndez 17), the more so it is admittedly secured by means of side payments (Whalley 18; Schiff and Winters 28) from the more affluent member states. Further descriptions of objectives borrow from adjacent political science, and try to capture the economic significance especially in the pursuit of regional power or influence. Baldwin thus presents gerrymandering and voting power as likely negotiating purposes. As they do not add conceptually much to the previous discussion, but are nonetheless relevant to the nature of the interdependence, the topic is to be reexamined in section 3 below. 2. Objectives of integrating countries: Empirical arguments The attempt to produce empirical support in favor of one or more of the theoretically anticipated benefits has been based on two main categories of research data: quantitative measurements of economic variables and direct evidence from the integration negotiations. As one of the oldest and most dynamic, the experience within the European area has compelled much attention. In spite of the quantitative emphasis the theory inspires, the formation of the Economic European Community (EEC) in 1957 is historically presented rather in terms of strategic considerations than as a result of conscious computations of economic benefits. Whalley exemplifies the original motivation behind European integration as a cooperative game in using common trade policy to increase the founding members' leverage in negotiations with the U.S., including at a multilateral level (17). The justification is by and large maintained by Fernndez to present the individual search when most of the former European Free Trade Association (EFTA) countries sought the entry into the EU (20). Arguments put forth by Moravcsik suggest that the postwar increase in European trade can hardly be attributed to policy changes, but rather, at least until the 1980s, to structural factors such as geographical proximity and per capita income (490). Other arguments leave the economic incentives aside altogether. Prevailing initially integration objectives are thus ascribed to helping preventing further European war (Whalley 18) or to the

weight of American interest in the 1950s to deter the influence of communism in Europe (Brabant 7). Even classical presentations of the economics of integration do not resist underlining that the driving force behind the formation of the EU was the political unity of Europe with the aim of realizing eternal peace in the Continent (El-Agraa 13). Along with the successive waves of enlargement, EU membership has been seen as a way to be part in the European political system of liberal democracy, explaining at least accession negotiations relative to Greece, Spain, Portugal, and, most recently, the Europe Agreements (EAS) (Fernndez 14). Presently, it is also argued that the EU enlargement process is critical to a relatively stable, prosperous, and peaceful Europe (Josling et al.), carries with it a kind of peace dividend (Hagen 3), and attracts the Central Eastern European Countries (CEECS) for geopolitical reasons (Baldwin et al. 147). A further note on strategic behavior is given by evidence that some Member states made demands in order to compensate for their willingness to accept the widening of the Community in such cases like the Integrated Mediterranean Programs IMP in 1985 or the formation of the Single European Market in 1986 (Reiner 78; Bache 68; Moravcsik). This kind of argumentation has proliferated not only due to its inbuilt credibility, but also as a secondary result of less than impressive cost-benefit analyses. Pelkmans finds inconclusive the estimates on the welfare effects of trade creation and diversion for the EEC from the period up to 1970 in the range of 0.15 per cent to maximum 1 per cent of GDP (94, 113). Dyker presents estimates of the static trade effects of the creation of original Common Market in the order of 1 per cent. Taking economies of scale and competition effects into account raises the estimate, but only to a still modest 3 per cent. Bolder assertions even claim that all estimates of trade creation and diversion by the EC which have been presented in the empirical literature are so much affected that the magnitude of no estimate should be taken too seriously (El-Agraa 150). Research conducted on the ongoing EU enlargement similarly reveals a fragile balance between costs and benefits, taking into account how much of the integrating countries' GDP is

affected as a result of trade liberalization. Lejour et al. report model simulations indicative of modest welfare improvement for the EU, at the level of 0.1 per cent, and significantly varying welfare gains for the CEECS, in the range of 1.5 to 9 per cent (8), results largely confirmed by numerous other researches surveyed by Quaisser and Hall (20-22). Other studies (e.g. Gacs and Wyzan; Kohler) compound the ambiguity about these evaluations by predicting a net cost for the EU on the average of 0.15-0.20 percent of GDP for the accession of five countries, and 0.37 per cent in the case ten countries are absorbed. Additional research with respect to changes in stock market indices and investments rates show that, with the exception of the 1986 entrants, nothing automatic can be inferred about the benefits, just the opportunity to catch-up (Baldwin et al. 143-5; italics added). Available data for non-European experiences with integration suggest a similar mixture of objectives. Fernndez provides a detailed account on the 1988 Canada-U.S. IA, as well as the 1992 Canada-U.S.-Mexico North American Free Trade Agreement (NAFTA). While the economic estimates of the direct macroeconomic effects on the U.S. were tiny and statistically insignificant, a more beneficial exchange of concessions has seemingly played the salient role for all parties concerned. Canada sought to obtain some degree of exemptions from the use of anti-dumping and countervailing duties and safeguard measures by the U.S. producers (17); the U.S. sheltered itself against future unfavorable domestic policy disciplines undertaken by Canada in certain areas (18); Mexico concerned much with domestic policy reform and secured very little in concrete tariff reductions or other concessions from the U.S. (23). Improvement in the individual bargaining positions is seen also central to the negotiators both for NAFTA with respect to the EU and Japan (Fernndez 24) and for MERCOSUR countries as subsequent leverage in accession negotiations to NAFTA (Whalley 17). 3. Constraints The discussion so far has raised the important issue of overcoming the problem of reliable representation of disparate integrating objectives. The economic factor is by no means a

predominant explanation of integration, although one should consider it more realistically diffused into a multiple-level interaction among negotiating countries. Some authors assign power a precise meaning only when the analysis is applied to a particular situation (e.g. Leap and Grigsby 204), or only in relationship with the other party (Rao and Schmidt 671). A comprehensive literature surveyed by Reza suggests that the states' behavior is determined by a three-layered system of basic constraints embodying elements of independence, dependence, and interdependence (44), which eventually shed light on the available and desirable courses of actions. Conventionally, the formation of policy preferences has been explained in terms of domestic the independence level or international the dependence level constraints or both. The work of several authors (e.g., Schelling; Mo; Putnam; Helpman) models bargaining as domestic and international games that are played simultaneously, and shows that the bargaining outcome is resilient on the effective way a decision is reached in the first place. According to several studies (e.g., Patterson; Pahre and Papayoanou) this approach is inconclusive. What they suggest is that negotiations rather encompass simultaneous effects on state behavior of a third level of interactive decisions as well. As proposed by Lehman, to make this conjecture explicit amounts to value the relative power of negotiating partners, an implication at large exposed by the literature on neo-functionalism and intergovernmentalism (e.g., Moravcsik; Bache). The concept is suggestive of the supplementary constraints impeding choice selection, beyond the commonly described dichotomy of international and national levels of analysis. This search for robust results induced a good strand of applied research (e.g., Aggarwal and Allan; Lenway and Murtha; Patterson L.A.; McDonald) to develop the two-level framework into variants of three- and four-level games with the intent to refine the strategic analysis. Papayoanou exemplifies such additional factors that shape the preferences in the forms of domestic sentiment, power considerations, stakes in a particular situation,

leaders' foreign and domestic policy interests, and leaders' assessments of the value of their alliance. What eventually emerges from these last studies consists of varied solutions to define constraints, which poses a task of elimination, which can only be accomplished by an examination of the cases (Conybeare 53). A precise interpretation is thus subsequently sought for at the three presumed constraining levels of analysis. The debate reveals the problem of representation of constraints at each level. a. The international level of economic dependence Putnam gives a classical representation of constraints at international level: National governments seek to maximize their own ability to satisfy domestic pressures, while minimizing the adverse consequences of foreign developments (434). The definition points to the dependence of domestic objectives on the interstate relationship as the key determinant of behavior in international relations. Analytically, the concept of power conveys the message on the constrained resources a nation has in the conventional sense that more power means better chances to arrive at the preferred outcome. Serdar emphasizes two main approaches to power: power by which states pursue and control others' behavior; and capacity stemming from their capabilities (2). The distinction is suggestive for the analytical procedures to measure power. Various indicators of power asymmetry reveal the hegemonic context depicted by the former case, while the latter indicates a more laborious process to influence decisions in international relations. Hirschman's early work on economic dependency distinguishes between countries, which can act either as object or as subject of a policy using foreign trade to influence other countries' behavior (68). He develops statistical measures of geographic and commodity concentration of trade to discuss the extent a country could bilaterally constrain its commercial partners' choice. Holzman applies a similar framework and argues that such exercise of power has been used frequently in recent history (6466). His examples include the U.S. against all communist

countries; the U.S.S.R. against China, Albania, Yugoslavia and Eastern European countries; the Middle East oil producers against Western Europe, Japan, and the U.S. (55). Other approaches to asymmetry give a country's size a subjective predictive value depending on the particular interaction. The underlying rationale offered by Lindert assumes that a country is small if it is likely to be more dependent on a particular trade relationship with its partner country, viz. it trades exports and imports with low price elasticity of demand (191). Conybeare exemplifies this kind of economic warfare in his model of trade war. The presumption correspondingly asserts that as the disparity in size increases, the ability of the large country to extract gains from the small or hurt it with retaliation increases; the ability of the smaller country to gain from a tariff or hurt the large country by retaliation diminishes (26); the conflict engenders a mutual loss if both countries are either large or small (27-28). The benefits of size are documented in other contexts as well. Alesina and Spolaore ascribe size a positive function of the heterogeneity of population's preferences, and a negative function of the fixed costs per capita of government, including such costs for creating and maintaining a monetary system, a bureaucracy, a tax collection system (3-4). Their model is consistent with the widely accepted view that international conflict increases the chances for success the larger is a country's size (14-15), but its predictions become highly improbable in a tariff-formation setting. They conclude first that a world of few, large countries increases the probability of conflict, and second that the mass of observable conflicts may go up among small countries (16, 23), although both types of countries would rationally have no reason to embark on such mutually harmful conflicts. An appropriate inference from these results would be that power-based relationships predictably do constrain countries' behavior in a bilateral game. It is at the same time obvious that this asymmetric perspective does not provide for a comprehensive understanding of interaction between states. On the one hand, when conflict among similarly sized countries is involved the explanations are contradictory depending on how size is defined in the first place.

On the other hand, asymmetrical dependence is not by necessity indicative of relative power. Bottom et al. weigh experience heavily in forging a much greater willingness and ability to exploit the power differential in the negotiation process. Experienced players, they claim, use their risk preferences to achieve a more advantageous division of value (162). Similarly, Wagner thinks that countries more realistically face unexploited opportunities to trade economic resources for political concessions (463), a process which, if successfully managed, could leave a country better off independent of the degree of asymmetry. According to Grossman and Helpman, policy constraints are relaxed, for instance, when a government credibly makes use of domestic political contributions of various special interests as an exchange currency for desired outcomes in international negotiations (12). In contexts where political economy plays a rather powerful role it may be assumed a complex process to determine the outcome of negotiations (Bottom et al. 147). Coalitions of participants and counter-coalitions, pivotal players are the normal representations of a country's objectives and preferences. Countries are rather prone to negotiate alliances in order to strengthen their influence or to reduce their dependence by improving their capabilities in competition with others (Serdar 3; Rao and Schmidt 671). Manzini and Mariotti's study aims at modeling such a context in which bargaining behavior is regulated by some collective decision mechanism. Although majority vs. unanimity voting are likely to result in different bargaining's outcomes, they argue that during the process proposals are made using an internal procedure, i.e. a set of ex-ante rules of how to play the game (7) and thus add an institutional structure to attain equilibrium. In international negotiations, for instance, Conybeare remarks that the Most Favored Nation (MFN) rule may constitute such a mechanism later internalized in the politics of the domestic agents by each player (72). b. The national level of economic independence

Rodrik observes that trade policies are almost always biased against trade, rather than in favor of it (26). Several studies (e.g. Conybeare 50; Rodrik 17; Helpman 1) point indeed that a country's expected behavior may deflect from rational income-maximizing objectives as politically-influential groups can be made better-off by policy interventions in trade. Although a theory of domestic politics has yet to come to life (Helpman; Milner and Rosendorff), there is commonly acknowledged that nation-states embody country-specific governance capabilities (Lenway and Murtha 513), which bear on the strategic interaction a highly influential mixture of domestic politics. When trying to substantiate what those governance capabilities really mean, economists like Bhagwati typically admit a composite of ideology, interests, and institutions as the key factors in settling on a certain outcome of trade negotiations. Several attempts have been proposed to understand the way domestic political decisions shape strategic interactions. Romer constructs a model in which misconceptions, i.e. individuals' correlated errors, about how the economy functions play the key role. According to his theory, voters' and politicians' beliefs are relevant to political outcomes (29). The search for institutionally conceived means to expose political representatives to information is the solution he accepts in order to provide any insights about the source of seemingly inefficiently political decisions (3). Rodrik's approach is more specific. He conveniently dichotomizes between demand-side of trade policy individual preferences and interest groups, and supply-side of trade policy policymakers' preferences and the institutional setting. His analysis however shows that a satisfactory treatment of all these issues would likely be intractable (3). What nevertheless makes this distinction important is the manner in which political influence translates into bargaining advantage to a country. In this bargaining environment, Mo argues that a negotiator operates with constraints because she has to obtain the support of at least some of the other domestic interests. Several studies considerably enlarge the subject to correlate more directly political conditions with economic behavior. Olson explains slow economic growth as a positive function of the

stability of the overall pattern of rent-seeking interests or distributive coalitions. July similarly ascribes economic performance to the absence of ideological divisions in the government. Milner and Rosendorff reach complementary results from a perspective they call electoral uncertainty, i.e. the majority in the legislature and the executive are unlikely to share similar policy preferences. They predict that an executive's ability to find domestic consensus on an international agreement diminishes as divisions in government increase, and the expected outcome becomes more protectionist. These authors' evidence refers to the 1993 nearly failed NAFTA ratifications; the U.S. rejection of both the League of Nations in the interwar period and the International Trade Organization in the late 1940s. Ameldung also documents the Turkey's choices of trade strategies in the postwar period and shows how liberal trade policies regularly got promoted in the face of non-factional domestic politics. The attempt to reveal the mechanism in greater detail nonetheless remains subject to analytical approaches with varying degree of explanatory power. Schelling's and Putnam's works advance the conjecture that, given sufficiently great domestic constraints, a country can have a bargaining advantage in international negotiations. Mo attempts to model the predicted behavior, and his results show that the precise outcome depends on the institutional setting whereby domestic political power is distributed in the medium range. However elusive this result may sound, it nonetheless underscores that a negotiating country has to make in fact more concessions under greater domestic constraints. Miller strengthens the case of failure to avoid international conflict due to domestic problems when he finds that democratic and autocratic states indeed behave differently: the latter appear more prone to escalate the conflict (399). His response, as well as the Conybeare's lay emphasis on political vulnerabilities of leaders, such as economic recessions, levels of domestic, cyclical decline of specific industries, which discount the benefits of future cooperation, and hence allow for protectionism. Grossman and Helpman capture the concept of trade cooperation as a measure of political well being. By their

reasoning, trade war equilibrium is highly dependent on the way a government's behavior reflects political conditions at home. A liberal stance in international negotiations could thus be as much expected as a protectionist one under the circumstances of credible commitment on behalf of the executive to support various industries' interests. Recent research in institutional economics is an appropriate field, which economists turn to in order to comprehend this diversity of factors. North views institutions as humanly devised constraints that structure human interaction (10), faithful reflection of the underlying incentive structure. In that sense, Juli exemplifies cooperative behavior in trade policy area as a result of alterations in the institutional framework (19). In a comprehensive study, Easterly and Levine make a strong case for the institutions, understood in the form of diverse instances like political stability, property rights, legal systems, patterns of land tenure and so on. Their findings explain crosscountry differences in GDP per capita once one controls for institutions. In their words, institutional quality seems to be a sufficient statistic for accounting for economic development (33). As easily can be inferred from these descriptions, the institutional context is eventually made recourse to in order to gather convergent, even if disparate, explanations for domestic policy influences. c. The issue-area level of economic interdependence Aggarwal and Allen suggest that it is reasonably to think of cases where overall power may not always be fungible across issue-areas (12). By consequence, the most preferred outcomes a large country would normally envisage might be seriously distorted by an apparently weak specific bargaining position, a conclusion also supported by the previous discussion on power asymmetry. Trade negotiations, and particularly integration arrangements, have become increasingly multilateral. Large-numbers trade games increase the complexity of interaction and admittedly change the expectations about countries' behavior (Alesina and Spolaore 23; Conybeare 55).

Papayoanou devises the concepts of collaborative-type vs. unilateral-type preferences in order to deal appropriately with cases when compromises and even submission to the other's party proposals represent reasonable conduct. Similarly, Langlois and Langlois conceive three possible classes of strategy whose characteristics lie in the way the act of deviating from expected play is moderately, severely or not punished by the partner (819). This literature enriches the influence tactics in a considerably wider range of determinants besides power. For example, Rao and Schmidt list among them cultural distance, conflict frames, trust, interpersonal orientation, and time horizon (667). In Jervis' view, the actor is not supposed to understand the logic of the theory; there are the actors' beliefs and expectations, which should be incorporated in the models of interaction. The approach to bargaining power thus attempts to settle on the best of the outcomes possible in a specific situation. That makes research particularly challenging. According to Snidal, to establish the correspondence between an issue area (preferences, motivations) and its game model is the toughest problem confronting successful empirical application of game theory (40). Diverse explanations were proposed to understand power in interdependence. Parts of them are simply conceptual. Commitment and alternatives represent one of the answers in the sense that more commitment leads to less power, while more alternatives bring about more power (Leap and Grigsby 203). Resources too deserve consideration because the ability to provide, obtain, and withhold resources is key to power (Leap and Grigsby 205). Lehman gives credit to that capability to create new options, to make choices, and to constrain the choice selection of other actors (1). For Schelling, the actor's relation to the other player is to be understood as a mixture of mutual dependence and conflict, of partnership and competition(89). Nalebuff and Branderburger lay on the valueadded concept the same analytical value. This research is particularly insightful because it draws attention to the significance of the contextual issues. Schelling anticipates the discussion when argues that the search for a favorable outcome is not concerned with the efficient application of force, but with the exploitation of potential force (5). Kennan and Wilson's

empirical data on labor conflict resolution similarly suggest that the parties influence the outcomes irrespective of the bargaining setting. A consistent approach to the topic offers the Leap and Grigsby's model which distinguishes between power that is available (potential power) and power that the parties actually use (enacted power) (205). It provides so an explanation for the process by which power is accumulated or, alternatively, dissipated. In their view, transformational factors account for the degree of the unused power and may take the form of a particular party's strength of commitment to a bargaining relationship; the alternatives available to a party; and information available that has an impact on the bargaining relationship (205). Because of the synthetic nature of this model, its implications are developed in the next chapter. 4. Preferences and strategic structures It is widely recognized that preferences are one important parameter of conflict (Bennett 31). A common understanding is that they reveal an ordered and weighted set of values placed on future substantive outcomes that might result from interaction (Moravcsik 24). Situational constraints provide the generic way to assess states' preferences and further reveal the underlying strategic structures of interaction. According to Snidal, an explanatory view on negotiations emerges when a certain game structure, defined by preferences and available strategies, and corresponding game theory solution concepts lead to inferences about the behavior of individual states and about the overall outcome (43). Manski argues that if such processes are to get any practical usefulness, one need to know what classes of processes are prevalent in the real world (4). His own representation of interactions describes preferences influenced by the behavior of the group a person belongs to, by the exogenous characteristics of the group members, and by the common individual characteristics or institutional environments (24). Other significant results are implied by experiments in evolutionary psychology, which assign individuals one of the three behavioral strategies: co-operators help the group at the expense of their individual rewards; defectors - accept the help of others; and punishers - punish defectors at a cost to themselves (The Economist).

Generally, the essential features of these behavioral stances are captured by a game structure in the form of assumptions about actors, strategies, payoffs, and predictions about the outcomes (Snidal 45). In most applied research, strategic structures are understood in terms of simple 2 x 2 games to such an extent that Stone views them a ubiquitous feature of the analysis of international relations (216). This perspective allows researchers to use taxonomy itself as a tool of cognition (Serdar 12; Kreps 37-41). If this is adopted, the games formally include a description of two policy choices available to each state (typically labeled cooperate and defect), an outcome associated with each of the four combinations of policy choices, and preferences for each state over the four outcomes. The game-theoretical approach is usually presumed to provide rigorous flexibility, in the sense that mathematical logic provides the rigor, but dominant issues and actors' interests let contributors be flexible in their modeling choices (Pahre and Papayoanou). Rapoport et al. who show that strictly ordered preferences are conducive to 78 conceptually different 2 x 2 games provide a reference work in taxonomy. Nonetheless, analysts embark on characterizing several contexts in international relations, e.g. war, nuclear deterrence, bargaining, crises, alliance formation, trade wars, and international cooperation, by only a few games structures with such odd names as Prisoners' Dilemma, Chicken, Harmony, Deadlock, Stag Hunt, Bully or Called Bluff. The relevant point with the game labels is their suggestive implication with respect to the players' preference order over the outcomes. That means that the same strategic structures may in fact correspond to and explain different international issues if the same preference orders apply. This inference inevitably makes scholars like Fearon (Bargaining), Lichbach, Conybeare, and Aggarwal and Allen to focus on the question of the origins of these rankings and the process by which payoffs are generated. The analysis is thus deemed to detail how the negotiating countries would rank the four outcomes identified by the theoretical setup. A simple model of strategic structure in international trade is presented by Conybeare (47). It is based on the partners' bilateral trade structures, which may depict complementarities or similarities.

Trade complementarities imply low elasticity of demand for each other's products, and high costs to a trade war because costs of disrupting trade are severe; the partners by consequence prefer cooperative solutions. Countries with similar economic structures would have substitutes for each other's products and a higher elasticity of demand for imports; in this case, the conflict would be more easily absorbed. A more appropriate methodology would be, following Bennett, to integrate game theory with other perspectives and endorse an eclectic methodology (20). Snidal embraces a similar view as he suggests assorted analytical tools as, for example, incorporating different perceptions, conflict dynamics, multi-level games, many moves (31), and testing different forms of complexities (39). For Lichbach, several questions remain however open, as those regarding the payoff structure, the extent of mutual and conflicting preferences, and the types of interactions. The analysis on the particular case is indicative of the preferred course of actions. The proper shortcut from the theoretical validity to practical relevance could be thus appropriately defined by the logic of situation: the choice of strategy constrained by a country's or an actor's relative power. 5. Summary The topic of economic integration has been received a heteroclite treatment with respect to the potential conflict and strategic options which emerge during negotiations. Despite the widely accepted framework of analysis, the traditional arguments have received only minor support from a practical viewpoint, that is, what a nation's representatives actually pursue during trade negotiations, from both theoretical and empirical studies. The empirical research rather highlights the theoretical ambiguities than underpins different scenarios. The complexity inherent with the decision-making process receives important support from research. The game-theoretical literature provides much help in understanding the logic of interaction, that is, how the game is played. Different strategic structures of interaction are illustrative of the players' constrained behavior. The perception of rivalry and cooperation in the

marketplace finally directs the researcher toward a predictable order of preferences and hence to frame a game-theoretical based context of interaction.

IV
Research methodology
his study does not consider the accession of the CEECS into the EU as a relevant issue of negotiations. Clarifications are to be presented in the next chapter. For the time being, it is suffice to say that even if time sequence of entry for the applicants varies, that does not induce any major change as to the membership aspirations. The scope of negotiations extends much further beyond the political decision of enlargement; evidence of official statements and present record of results show that the main concern of both sides actually resides in the terms negotiations are concluded. The literature review suggests a host of situational variables, which point to the strategic options to reach a certain outcome of accession. It is this latter aspect of negotiation, which defines the integration game to be elucidated under the present investigation. The analytical model proposed here follows in the steps of other attempts (e.g. Conybeare; Aggarwal and Allen; Aggarwal and Cameron; Brams and Kilgour; Lichbach) in the recognition that no standard methodology exists as different authors chose to adjust the research design to the particular context under review. The theoretical framework is adapted to the three-level analysis of situational variables just sketched in the previous chapter and develops an original interpretation of its elements in the context of the EU enlargement. The variables reveal economic, political or social constraints of strategic conduct and provide information on the extent the

negotiating countries are willing to make concessions. Their predicted positions on particular issues reveal a certain structure of preferences on foreseeable outcomes in the process of negotiations. In this perspective, the present methodology is so constructed that it generally applies to any issue of strategic interaction, which involves two distinct parties with sufficiently conflicting interests. The topic of agriculture is an application that presents the advantage of a game of negotiations rich of contextual details.

A. Background on Community decisional mechanism The enlargement negotiations were initiated and advanced to the CEECS out from a complex EU decisional mechanism. It is for this reason that this internal decision-making process has fundamentally structured the carrying out of the negotiations. The institutions entrusted by the founding treaties (The Rome, Maastricht & Amsterdam Treaties, Articles 189-280) of the EU to carry out the provisions therein contained are: a European Parliament, a Council of Ministers, a Commission of the European Communities, a Court of Justice, and a Court of Auditors. The Parliament, the Council, and the Commission are usually known as policy-making institutions, and adopt legislative acts based on the integration strategy periodically outlined by the European Council, an institution that convenes since 1974 at the highest representative level of the EU member states. The way each of the three institutions gets involved in the decisional mechanism particularly influences the interaction during negotiations. The European Commission (EC) wields a highly visible presence in operational functioning of the Community. It may formulate recommendations or deliver opinions to ensure that the provisions of the successive treaties establishing the EU are applied, or take the required decisions in exercise of the powers conferred on it by the Council. The Commission performs its current duties through the administrative work of DirectoratesGeneral (DG). In the context of the eastwards enlargement, the activity of coordinating the draft negotiating positions under which each applicant country would join the European Union fell within the competence of the DG Enlargement (DGE).

The European Parliament (EP) echoes the national interests in the most participative mode: it consists of representatives of the peoples of the Member States. By exercising its powers into five main areas - amending legislation; controlling the budget; control over the executive; appointing personnel to other institutions; and the right to dismiss the Commission (Warleigh 62) the Parliament may or may not help configure a certain institutional stability of the EU functioning. The Council has power to take decisions on all EU legislative proposals, and therefore plays the pivotal role in the EU decision-making process. It consists of a representative of each member state at ministerial level, authorized to commit the government of that member state. Although the specific procedures may differ, the main routine of policy-making process implies that the Council receives and analyzes legislative proposals submitted primarily by the Commission and takes the final decisions. The Council authorizes the Commission to open the necessary commercial negotiations with one or more States or international organizations. The Council reaches decisions by simple majority (SM), qualified majority (QM), or by unanimity (The Treaties). Although majority voting constantly increased its acceptance as a rule rather than an exception, the working assumption remained that if objections were raised, the veto would apply (Yataganas 15). Traditionally, the qualified-majority threshold (QMT) established at about 70% of the voting rights since the creation of the European Community. According to Bobay, given the political nature of the European Community project, the founding members considered justified to establish each member's voting rights on a functional political equilibrium, while contingent circumstances like relative economic weight, population or contribution to the Community budget would have to be only of secondary importance (10). The main question was thus not to decide how much voting rights each Member State would be endowed with, but to define which groups of countries should be able to block Community decisions. Bobay concedes that an acceptably balance of power among EU Member States has represented a critical issue from its inception (9). The

scale of the member States' relative voting weights in the EU-6 of 1957 is about the same as that of the EU-15 of 2000. EU enlargements have progressively shifted the initial balance of power to the advantage of small member States and to the detriment of the large members as a consequence of the structure of enlargement, which have mostly encompassed small States. Founding countries agreed that a blocking minority would be attained by the coalition of a large member (France, Germany, or Italy) with a small one (Belgium or the Netherlands), while the coalition of a large member with only a very small one (Luxembourg) was considered insufficient to block a decision. From that agreement it could be figured out the respective voting rights and the majority threshold. The last enlargement negotiations however compelled the EU members to ponder over the proper allocation of voting power inside an enlarged and increasingly heterogeneous Union. The result was the conclusion of the Treaty of Nice in February 2001 with the introduction of several innovations. In the new system, with some exceptions, a decision is adopted if the member States supporting the proposal represent at least the threshold of weighted votes increased to nearly 74% for the EU-27, half of the total number of members (the simple majority threshold, SMT), and 62% of the EU population (Yataganas 39). Some observers (e.g. Bobay, Yataganas) find the new rules more favorable to the use of political influence by means of both increased discrepancy among voting rights and easiness of the formation of blocking coalitions or, alternatively, winning coalitions. On the other hand, in the EU-27, the higher QMT means an enhanced opportunity to form alliances based on individual issues to oppose decisions that have the support of a larger group. The role candidate countries will play in the process is engrossed by the magnitude of the enlargement. Yataganas sees their predictable influence tied to the decisional realm because they understand that their interests will be better protected in a political Union, than in an economic area open to a degree of competition they cannot match or adopt (56).

B. Situational variables and constraints 1. The international level of dependence The likely perspective of accession makes the enlargement negotiations a particular game of interaction in which the degree of dependence rests on the power deduced from the functioning of the future decision-making mechanism. In this sense, a member state's or candidate country's power is defined as its capacity to influence the outcome of the decision-making process within the enlarged EU. This first assumption about overall power constraints is supported by evidence in the context of EU previous enlargements or likewise decisions. In studies like those of Baldwin et al., Moravcsik it is documented how crucial decisions on the allocation of funds could be explained by using the anticipated voting power of the new entrants. Several studies (e.g. Bobay 14; Laruelle and Widgren 3; Baldwin 78) enlarge the view and support the opinion that the number of votes a country has does not measure alone its power. Estimates of integrating countries' decisional capacity are usually argued to depend on the probability of coalition formation (Algaba et al. 15; Laruelle and Widgren 3). This literature proposes two standard assumptions on a country's capacity to exercise its power. Under the first assumption, all coalitions have an equal probability of formation. Under the second assumption all the coalitions of a given size have the same probability of forming. The first assumption leads to the non-normalized Banzhaf index, while the second one leads to the Shapley-Shubik index. In spite of their different mathematical constructs, both indices evaluate a country's vote as pivotal when the addition of its vote to a particular coalition switches that coalition from losing to winning (Algaba et al. 3; Baldwin 76). A winning coalition is defined as that which can make a decision without the vote of the remaining players (Laruelle and Widgrn 2). They prove useful in the sense that they measure power as the relative number of times a country is pivotal, i.e. changes a losing coalition into a winning coalition. An index of 0.020, for instance, indicates that the probability of influencing the result of voting is 2 per cent.

The two alternative approaches are likely to give a first assessment of the impact of the EU enlargement on power. Table 2 below summarizes the findings from literature and discriminates among several types of decisional power. Table 2 Estimations of relative decisional power within the enlarged EU-27 Council
Type of decisional power Strong Countries (Voting rights) Germany (29), France (29), United Kingdom (29), Italy (29) Spain (27), Poland (27) Romania (14), Netherlands (13), Greece (12), Czech R. (12), Belgium (12), Hungary (12), Portugal (12), Sweden (10), Bulgaria (10), Austria (10), Slovakia (7), Denmark (7), Finland (7), Ireland (7), Lithuania (7) Latvia (4), Slovenia (4), Estonia (4), Cyprus (4), Luxembourg (4), Malta (3) Range of Banzhaf indices I: 0.0778 II: 0.0665 I: 0.0742 II: 0.0631 I: 0.04260.0218 II: 0.04070.0263 Range of ShapleyShubik indices I: 0.08710.0870 II: 0.08370.0836 I: 0.0799 II: 0.0767 I: 0.03990.0196 II: 0.03940.0208

Moderately strong Moderately weak

I: 0.0125I: 0.01100.0094 0.0082 II: 0.0198II:0.01310.0177 0.0106 Source: Algaba et al. for indices; Treaty of Nice for allocation of voting rights in the Council.

Weak

Table 2 presents two estimates for indices: 'I' stands for the first decision rule the weighted triple majority corresponding to votes (QMT), countries (SMT), and population; 'II' stands for the second decision rule - the rule I except for a qualified majority of 2/3 of the countries. The computations show a remarkably

similarity between the two indices, but sufficiently discriminate among groups of countries as to their relative power. The analysis however has not the accuracy to indicate that a moderate position could be meaningfully considered apart from the larger group, which it belongs to, either strong or weak. Nevertheless, the results confirm the dichotomy between large and small Member States widely accepted in the literature on voting power indices as suggested by Plechanovova, which without exceptions parallel those countries in the table with strong and moderately strong power, and moderately weak and weak' power, respectively. At the same time, as the EU acts as a bloc and demonstrates the capacity to structure the negotiations, it normally plays 'strong'. The indices are instead particularly indicative of each candidate countries' influence. Given the current weighted voting system, Poland is the only country of the group which can play 'strong' at the international level, while other countries, some more economically advanced than others, are only able to play 'weak'. The information gathered at this level specifically outlines the concept of absolute power with the meaning Leap and Grigsby refer to: the power of an individual party irrespective of the other parties' power (206). Its analytical value should be precisely understood to the extent this measure of power tells, how powerful a country is likely to be on a randomly chosen issue (Baldwin 78; italics added). Possible coalitions are likely to form on specific negotiating issues and national preferences could thus reveal a mixture of interests in various instances. The other two levels of analysis are thus required to overcome this kind of limit the indices display. 2. The national level of independence The widely acceptance of the quality of institutional change for positive economic outcomes has been lately reflected in the proliferation of cross-country indices measuring various aspects of governance. Studies like those of Kushnirski, Easterly and Levine, Weder make a positive correlation between credible and stable institutions, on the one hand, and high levels of governance or institutional indicators, on the other hand.

Kaufmann et al. construct probably the most laborious index of governance broadly defined as the traditions and institutions by which authority in a country is exercised (Governance matters). Specifically, the methodology aggregates estimates of three aspects of governance: the process by which those in authority are selected and replaced; the capacity of the state to implement sound policies; and the respect of citizens and the state for the rules which govern their interactions. The authors' research draws on 17 separate sources of subjective data on perceptions regarding the quality of governance in different countries, which include international organizations, political, and business risk rating agencies, think tanks, and nongovernmental organizations (Governance matters II). Six aggregate governance indicators - Voice and Accountability, Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption are then computed within a range from 2.5 to 2.5, such that higher values correspond to more credible and more stable institutions. A cautious note the authors themselves put forth should qualify the use of their findings for the present analytic purposes. Because it is difficult to discriminate among the majority of countries with any degree of confidence, it is advisable to sort countries into broad categories according to their levels of governance (Aggregating Indicators 3). Further, as the individual countries' indicators are methodologically transferable in aggregate ones, an aggregate index for the EU is computed as a weighted average of Member States' institutional indicators. Similar methods are used, for example, in the works of Kushnirsky to construct an 'institutional index of transition' (6), or of Quaisser and Hall to compute a 'market economy index' (17). For the present purpose, the national indicators are given weights corresponding to each member state's representation in the European Parliament. The choice is supported firstly by the faithful representation of this elective body of the national electorates. Due to the Parliament's ascending role over Commission, its composition is thought to reflect more appropriately the influence of the domestic politics of the Member States. Secondly, the

discussions engendered by the enlargement as to the new composition of the Members of European Parliament (MEP) convincingly show the growing importance of Parliament in the EU decision-making process. Yataganas considers the case indicative of a still persistent interference of national policies in European integration which proliferates to the composition of the Commission as well (42, 24). The aggregate indicator for the EU is computed as a weighted average of individual indicators, where the weighs correspond to the share of each Member State in the EP. During enlargement negotiations (2001), Parliament's composition has been as follows: Germany 99 (15.8%), UK, France and Italy 87 (13.9%), Spain 64 (10.2%), Netherlands 31 (5.0%), Greece, Portugal and Belgium 25 (4%), Sweden 22 (3.5%), Austria 21 (3.4%), Denmark and Finland 16 (2.6%), Ireland 15 (2.4%), and Luxembourg 6 (1%) out of a total 626 MEP (Yataganas 18). A synthetic table is presented below. Table 3 Estimates of indices of institutional stability Country/Partner European Union Bulgaria Czech Republic Cyprus Estonia Hungary Latvia Lithuania Malta Poland Romania Slovakia Slovenia 2000/01 1.12 0.12 0.64 0.95 0.85 0.80 0.36 0.39 0.72 0.59 -0.15 0.45 0.85 1997/98 1.22 -0.01 0.68 1.01 0.49 0.87 0.28 0.27 0.85 0.70 -0.10 0.24 0.85

Source: Country estimates are calculated as simple average of the six aggregate governance indicators from Kaufmann, Kraay, and Zoido, Governance matters II, 2002.

A cautious note is required in interpreting data in Table 3 as well. First, the indicators are suggestive when applied to individual cases rather than comparing different national estimates. For example, a decrease of the EU indicator from 1.22 to 1.12 in the period under consideration indicates a loss in institutional stability, but the values are not statistically significant in contrast with other close estimates. Second, discrimination between broad categories does make a difference as regards the influence of domestic politics. According to Kaufmann et al., an acceptable classification would consist of top, middle and bottom terciles as measured against the -2.5 / +2.5 interval. That means that the parties considered by this study could be assigned the following institutional 'labels': 'stable'/'credible' for the EU and 'moderately stable/credible' for both Poland and Romania because of their closer distance to the first tercile. 3. The issue area of interdependence Supplementing the power relationships in dependence and independence with interdependent interaction completes the analytical framework. A country may either agree upon mutually advantageous terms or try to shape the course of negotiations disproportionately to its benefit. The issue-specific outcome is additionally constrained by factors specifically related to the negotiating issues. The model of Leap and Grigsby develops a theoretical framework to consider power in a certain bargaining context (205206). The essential distinction they and other authors like Schelling make consists in viewing bargaining power as the ability to exploit potential power a country/partner is endowed with. Reminding of the fable of the tortoise and the rabbit, an outcome looks more or less promising according to how the negotiators transform issuearea capabilities in effective control of the specific bargaining problem.

The analysis proposed by Leap and Grigsby rests on observational measurements of sources of potential power and the transformational factors which actually configure it in enacted bargaining power. The general concept of the sources of potential power is constructed on the degree of control a negotiator organization or people may exert on the various elements of the negotiating environment. Three categories of resources are considered to dominantly influence potential bargaining power: Uncontrollable (U): public policy, economic conditions, industry structure, elasticity of product demand, political-social context; Controllable in the long run (CLR): amount and type of information, technological change, formal bargaining structure, pattern bargaining, presence of fixed and variable sum components, attitudinal structuring; Controllable in the short run (CSR): bargaining team composition, negotiation setting, pre-impasse bargaining tactics, concession behavior, cost assessments of a dispute. The general theoretical model should be adapted and supplemented with particular factors pertaining to the negotiating issue. For reasons that will become evident in the next chapter, discussion on each resource among those mentioned above may prove redundant as they can be conveniently combined in either existing elements or new ones. Such cases include especially CLR resources where 'policy formation' and 'decision-making process' regroup more aptly the original suggestions of Leap and Grigsby. Moreover, 'public policy' as regards the agricultural negotiations proves rather a 'controllable' event in the long run, with components variably influencing both 'policy' and 'decisions'. Similarly, 'concession behavior' may also refer in the present context to 'cost assessment', 'bargaining team composition', and 'pre-impasse bargaining tactics'. On the other hand, some resources, e.g. 'elasticity of product demand' and 'technological change', are thought irrelevant for the present topic, while, e.g. 'industry structure', would go much beyond the scope of the study. These qualifications change the analytical framework into the following structure:

 Uncontrollable (U): economic conditions and politicalsocial context; Controllable in the long run (CLR): policy formation and decision-making process; Controllable in the short run (CSR): concession behavior and negotiation setting. The extent these resources are exploited hinges on the transformational factors a negotiator faces in the specific context. The innovation the model of Leap and Grigsby suggests is that disparate such factors proposed by the literature are thought to produce simultaneous effects on potential power and thus to provide a more accurate evaluation of the strength or weakness of bargaining power. Three factors are deemed essential to make use of and transform potential power: commitment to a bargaining issue; perceived alternatives of reaching the same outcome; and information available to each party. An analytical depiction of the process appears in figure below.
SOURCES OF POTENTIAL BARGAINING POWER Uncontrollable (U) Economic conditions Political-social context Controllable in the long run (CLR) Policy formulation Decision-making process Transformational factors Controllable in the short run (CSR) Concession behavior Negotiation setting

Commitment Alternatives Information

Short-run and long run power adjustments

ENACTED BARGAINING POWER Manifestations of bargaining power 'Cooperate' strategy 'Not-cooperate' strategy Bargaining outcomes Mutual consensus Winning No consensus Other party's winning

Figure 1. Theoretical Model of Bargaining Power in Strategic Negotiations Adapted from Leap and Grigsby (209)

A dynamic perspective is introduced when considering short-run and long run adjustments of potential power. Bargaining provides a continuous opportunity for the players to learn about each other and to react in a way to strengthen their own positions. It is thus evolving an ongoing examination of the determinants of power, more realistically perceived than in ex post investigations. C. Instrumentation Ghemawat aptly describes the methodology of formulating a specific model: pick a particular case and then cast around for game-theoretic models developed by others that can be extended or adapted (17). Once embarking on an accepted method, problems remain, though, for the type of the games the actors are involved may not be as readily noticeable as presumed. Constraints and corresponding strategic choices lay the grounds for a model of strategic interaction. A strategic interaction modeled as a game consists of: relevant players; strategies; outcomes; and preferences for payoffs associated with each outcome. The players are the negotiating parties, i.e. the EU and each CEEC for the present purpose. The strategies represent the possible courses of actions, provided that the behavioral options perceived by the players may be plausibly reduced to cooperation ('C') or non-cooperation ('~C') on a given issue. A process of exposing the basic situations of interaction has been developed in the works of Aggarwal and Allen (AA), Conybeare (C), and Brams and Kilgour (BK). This study uses an adapted game model of strategic interaction for integration negotiations. A generic two-person, symmetric normal form game of strategic interaction is presented in the Figure 2 below.
Player B Cooperate(C) Not cooperate (~C)

Cooperate (C) Player A Not cooperate (~C)

Mutual consensus (MC) in issue area A prevails (AP) in issue area

B prevails (BP) in issue area No consensus (NC) in issue area

Figure 2. A generic game of strategic interaction Based on and adapted from Aggarwal and Allan 11; Brams and Kilgour 7.

The set of possible outcomes of the game are given by considering all the combinations of strategies that the players could choose. Four possible outcomes are depicted in the figure above. From the point of view of actor row they are: CC (mutual consensus); ~C~C (no consensus); C~C (other's player winning); and ~CC (winning). The preference set specifies how good or bad each outcome is for each player. The way preferences are deduced is fundamental for finding the predicted conclusion of the negotiations in the form of one the four possible outcomes. General rules are hard to find, as they usually are acknowledged by some authors, but discarded by others. For example, cardinal scales of measurements are found more informative (Bacharach 21), but at the same time largely irrelevant for game theory applied to international relations (Snidal 46). Zrn suggests a principle to sort out this kind of dilemma. He says preferences should be estimated independent of conflict behavior lest they lead to ex post facto rationalization of historical cases (298). A typically minimal level that could warrant a valid definition of the game structure is provided by ordinal measures of preferences. Aggarwal and Cameron, for example, value different policy formulations of the actors in utility functions, but then convert cardinal payoffs to ordinal rankings in empirical analysis. Utility scales illustrate a preference order for each player, in which the four possible outcomes are simply ranked from best (4) to worst (1).

The following assumptions are made about the relationships among each player's preference order for payoffs under the three situational variables exposed earlier. Arguments from the literature review shortly explain the choice and the approach similarly suggested by the adopted models is indicated next. The corresponding structures of strategic interaction are indicated further in Figures 3 and 4. a. Institutional stability a1: each player prefers mutual consensus to no consensus when institutionally stable (CC > ~C~C) AA a2: each player prefers no consensus to mutual consensus when institutionally unstable (~C~C > CC) AA The quality of institutions at home is a good indicator as regards the states' propensity to avoid or accept a confrontational stance in negotiation, i.e. allow for the occurrence of 'CC' vs. '~C~C'. A climate of stability is generally thought to provide a larger room for maneuver and increased willingness to seek for mutually advantageous solutions. Institutions do not however provide enough information to presume a country's behavior as to its capability to prevail over the other party's demands. b. Overall power b1: each player prefers no consensus to the other player's winning when power strong (~C~C > C~C) AA b2: each players prefers the other player's winning to no consensus when power weak (C~C > ~C~C) AA A purely asymmetric relationship favorable to a player results in obvious preference for escalation of conflict ('~C~C'). A strong position makes available superior resources to withstand a conflict. On the contrary, a big degree of dependence makes indulgence ('C~C') the most reasonable option. A weak player is always supposed to see conflict as a destructive choice. c. Issue-area bargaining power c1: each player always prefers winning when issue-strong (~CC is best) AA+BK c2: each player prefers winning to no consensus or the other's playing winning when issue-weak (~CC > ~C~C or C~C) AA

Prevalence in negotiations, that is reaching an outcome that exactly matches own agenda, is probably the only common objective for both parties irrespective of their constraints in issuearea. The difference appears when the issue-strong player plausibly sees no other alternative. For the issue-weak player, the preference is more constrained and should accordingly allow for possible mutually advantageous solutions as the best outcome. d. Interactive effect of overall power and issue-area bargaining power d1: each player prefers winning to mutual consensus when power strong and issue-strong (~CC > CC) BK+C d2: each player prefers the other player's winning to mutual consensus when power weak and issue-weak (C~C > CC) C In contrast with the model of Aggarwal and Allan, which consecrated this approach, this study finds more appropriately to allow for the combined effect of both general and specific capabilities to exercise power in interaction, instead of integrating the effects of overall power and stability. The rationale is twofold. First, institutional stability is arguably a more general variable of independent nature. Its influence becomes manifest rather directly than in combination. Second, exercise of power in interaction is better perceived through a doubled influence both at the general and specific level. In economic terms at least, because of tangled woven of disparate interests, it would be impractically to discern the impact from each origin. A strengthened position in negotiations provides incentives to evaluate conflict escalation better even than consensus. This position offers the highest probability to win out the opponent in interaction. Conversely, a weakened situation is presumed to allow for the lowest level of compromise: accepting the other party's demands at the expense of the consensual outcome.

Stable Issue resources and overall power Issue strong c1: ~CC is best Power weak b2: C~C > ~C~C a1: CC > ~C~C

Institutional stability Unstable a2: ~C~C > CC ~CC>C~C>~C~C>CC Hero

C~C ~CC> or >~C~C CC Chicken or Leader

Issue weak CC c2: ~CC > ~C~C or ~CC ~CC>~C~C>or or >~C~C>C~C C~C C~C CC Deadlock or Prisoner's Dilemma or Power strong Deadlock analogue Stag Hunt b1: ~C~C > C~C Issue strong power strong d1: ~CC > CC & C~C ~CC>CC>~C~C>C~C ~CC>~C~C>or Prisoner's Dilemma CC Deadlock or Deadlock analogue ~CC>C~C>~C~C>CC Hero

c1: ~CC is best b1: ~C~C > C~C Issue weak & power ~CC>C~C>CC>~C~C weak d2: C~C > CC Leader c2: ~CC > ~C~C or C~C b2: C~C > ~C~C

Figure 3. Deduced constrained preference order from Rows Perspective (for column, ~CC is replaced by C~C and conversely) Institutional stability Stable Issue resources and overall power Issue strong Power weak Chicken 3,3 2,4 1,1 4,2 Unstable Hero 3,4 2,2

1,1 4,3

Issue weak Power strong

Issue strong power strong

&

Leader 2,2 3,4 1,1 4,3 Prisoner's Dilemma 3,3 1,4 4,1 2,2 Stag Hunt 1,3 4,4 3,1 2,2 Prisoner's Dilemma 3,3 1,4 4,1 2,2

Issue weak power weak

&

Leader 2,2 3,4 1,1 4,3

Deadlock 2,2 1,4 4,1 3,3 Deadlock analogue 1,1 2,4 4,2 3,3 Deadlock 2,2 1,4 4,1 3,3 Deadlock analogue 1,1 2,4 4,2 3,3 Hero 1,1 3,4 2,2 4,3

Figure 4. Deduced symmetric ordinal games D. Data collection The proposed model of strategic interaction applies to the issues specific of enlargement negotiations on agriculture. The EU and each of the CEEC exchange concessions and settle on various matters like production quotas, level of subsidies, and rural developmental funds. When the negotiations end, the issue is provisionally closed until the applicant country becomes a Member State. In this model, such an event occurs when the two partners reach one of the four possible outcomes. Data are gathered to illustrate one of the two facets of the bargaining position given certain levels of overall power, as well as of quality of the domestic politics environment: a partner may play 'strong' or 'weak' on a specific issue when it is institutionally either stable or unstable and when it enjoys 'strong' or 'weak' capabilities to influence overall decisions. The country's assessment of overall power and institutional stability follows the mentioned findings in the literature.

The research design requires original data on each partner's capacity to play 'strong', when it favorably appropriates against its own value systems the conclusion of negotiations, or to play 'weak', when the enacted power makes the more preferred behavior difficult to carry out. The terms of reference for data collection are provided by the Leap and Grigsby's construct of bargaining power. Two methodological considerations support an observational study for the purpose of this assessment. First, the emergence of decision-makers' interests during negotiations depends on a continuous process of interaction and learning from agreements on previous issues. There is no other way they become manifest but through successive offers and counter-offers which are not plausibly foreseen before the negotiations. Second, estimates should be collected from various documents reflecting the actual stance a country embarks on. Zrn suggests that that could be the best material available because politicians or decision-makers are often ambiguous in the public realm (300). Additionally, search of library collections and observation of the actions of prevalent groups of interests supplement the analysis. E. Data analysis Analysis aims at predicting the possible strategic options of the partners when the integration agreement frames the general objectives, but the negotiations on specific issues have not a predetermined settlement. Two eastern countries experiences are observed in the application, in both cases the agriculture topic being of sensitive importance to the negotiators. The first case is that of Poland, one of the countries that completed the negotiations in December 2003 and became a Member of the EU on May 1st, 2004. The second case is that of Romania, a country that concluded its accession negotiations in December 2004. An historical treatment of the interaction is found appropriate in order to test the predictive power of the proposed model. Finding a strategic option is further complemented by considerations on reasonable alternatives so that each partner improves its own position. The model offers sufficient room to

deepen the analysis in this direction: 'Stag Hunt' is the only strategic structure which allows for a mutually advantageous equilibrium, while in all the other types of interaction a partner may wish to take on certain strategic moves in order to reach its most preferred outcome.

V
Bargaining power: resources and constraints
argaining power is transformed from potential to enacted, that is, the effective influence a party can wield during negotiations, by transformational factors. Analysis of these factors in the next chapter is illustrative of the bargaining strength or weakness on the issue and helps square the determinants of strategic interaction. This chapter introduces preliminary findings on the bargaining power as applied to the agricultural dossier in the process of the EU eastward enlargement. The interest is focused on the evaluation of the potential bargaining power by answering two questions: Where have the partners got the power resources from to support their baseline negotiating positions? How have they been constrained in doing so? A. The agriculture dossier In June 1993 during the Copenhagen European Council, the European Union (EU) defined the criteria, which Central and Eastern European Countries (CEECS) would have to meet before their membership application could be accepted. These criteria concern political and economic facets of the applicants' functioning regimes, as well as adoption of the acquis communautaire. The European Commission's opinions on the extent the candidate countries prepare for accession in compliance with these criteria

are reflected in annually published Regular Reports. Launching this screening process, the Commission stressed the potential benefits of enlargement for peace and security and economic growth and development throughout Europe, but noted that the prerequisite for accession was the adoption of the Community acquis (Enlargement: Preparing for Accession). The basic principle of the negotiations has thus become that all the candidate countries must approximate their legislation to that of the acquis. In the simplest sense, the acquis defines the rights and obligations all EU members have under EU law, i.e. the legislative body expressed in the EU founding treaties; the secondary legislation - detailed laws and rules adopted on the basis of those treaties; and the policies of the Union. There were identified 31 chapters of the acquis, which practically correspond to the negotiating substance as regards all policies of particular interest to the first two accession criteria. The whole process of harmonization is meant to duly ensure the smooth functioning of the EU policy mechanism at the accession date. Bilateral accession negotiations based on the Europe Agreements (EAS) opened in 1998 with the so-called 'first-wave' countries the Czech Republic, Cyprus, Estonia, Hungary, Poland, Slovenia - and extended in 2000 to the 'second-wave' applicants Bulgaria, Latvia, Lithuania, Malta, Romania, and the Slovak Republic. In April 2003, ten CEECS all of the above excluding Bulgaria and Romania signed the Accession Treaties (AT) to the EU and thus enlarged the EU membership from 15 to 25 effective from May 1st, 2004. The agricultural dossier has evolved gradually as a result of the complex evolution of the newly established political and economic relations between the EU and CEECS after 1990. One of the first measures was the extension of the EU Generalized System of Preferences (GSP) to the CEECS to include tropical products and some types of pork and poultry meat with a 50% levy reduction on limited quantities (Josling and Tangermann). From this fairly small compromise to the controversial discussions over the functioning of the CAP a decade later, the bridge to gap looks impressive in retrospective by any negotiations' standards.

The EAS were first to provide a consistent rethinking of the principle of trade liberalization, even though when applied to agriculture the main provisions were detailed in a separate protocol to ensure only a progressive reduction of barriers to trade. Preferences granted under the EAS took the form of a schedule for liberalized tariff quotas based on actual exports to the EU in a past reference period. Products not exported to the EU in the past, such as cereals, many diary products, sugar and many sugar products, were thus not included in the preferential arrangements. By 1996, membership applications based on the EAS had been received from all CEECS; the EU had been functioning as a single market for 3 years; enlargement to include three new members (Austria, Finland, and Sweden) and the WTO Uruguay Round Agreement on Agriculture (URAA) had just taken effect in 1995. These challenging developments prepared the stage for a renewed approach to negotiations. In July 1997, the European Commission adopted an action program known as Agenda 2000 to reform major policy areas, and also delivered in this context its first opinions on applicants' compliance with the membership criteria. The Berlin European Council reached a political agreement on Agenda 2000 in March 1999, a decision that was to shape fundamentally the accession process in general, and the agricultural negotiations in particular. The consequences engendered for the latter reveal a much broader impact than for many other issues. There was first the issue of further trade liberalization. Under Agenda 2000, further concessions ranged from full and immediate liberalization for the least sensitive products, such as horses for slaughter, fat livers of geese, or horse radish, to an assortment of more or less restrictive trade policy measures decided on specific requests made by the CEECS and agreed on a case by case basis (EU and Enlargement; Bergschmidt and Hartmann 13). There was then the agreement on a new financial framework (FF) for the period 2000-06. Two new pre-accession instruments were created a structural instrument (ISPA) and an agricultural instrument (SAPARD) in order to cope with widespread poverty and archaic rural development in Eastern Europe, which had acutely become a thorny aspect of enlargement.

The Agenda 2000 initiative however rose to prominence in the enlargement context mostly because it signaled the readiness of the EU to bring in the accession negotiations Chapter 7 on agriculture, one of the most important chapters of the acquis. This status has been reached thanks to two particulars. First, the acquis in the field of agriculture with ca. 40% of the EU legislation represents by far the most voluminous negotiating chapter (Delegatia, Fisa de sector). Second, agriculture belongs to those areas where legislation and policies mix up negotiable and nonnegotiable issues alike in an extremely demanding negotiating setting. The non-negotiable part of the acquis is mainly framed by legislative acts and institutionalized practices. A substantial part was initially presented in the 1995 White Paper (Preparation of the Accession Countries), a Commission document containing allinclusive references to the legislation relevant to the internal market. The applicants were indicated here the regulations concerning the veterinary, plant health and animal nutrition fields and agricultural commodities subject to specific marketing standards. Another non-negotiable component of the acquis consists of institutional requirements referring to the establishment and functioning of the Common Market Organizations (CMOS), which are essential to the proper operation of the agricultural markets. Detailed legislative and institutional presentations are subjects of subsequent accession documentation such as Agenda 2000 and annual EC's Regular Reports on each candidate country's progress towards accession. The negotiations on the Common Agricultural Policy (CAP) mechanism however make the agriculture dossier highly controversial. The negotiable aspects construct a classical bargaining game built on exchanges of concessions, divergent arguments and situations of conflict. The reason is that CAP involves policy measures with important budgetary impact for both partners alike: for the EU, this financial envelope covers about half of the total budget; for the CEECS, it represents approx. 70% of the total value of their agricultural output.

Even from a general perspective, handling the agricultural dossier proves difficult for reasons of manifest dissimilarities both among the CEECS themselves, and among these countries and the EU, which in turn give rise to different assessments of how the available resources could be best put at work in agriculture. Several studies emphasize that agricultural trade intervention in the CEECS ranges from discriminating against the agricultural sector, as is the case on some product markets in Bulgaria and Romania, to considerably protecting agriculture, as happens in Poland and Slovenia (Bergschmidt and Hartmann 6; Swaminathan et al. 5). Against this complex setting, the negotiations in agriculture officially began when the countries in the Luxembourg Group presented their negotiation positions on agriculture in NovemberDecember 1999. Soon after, the EU adopted its common positions and opened negotiations on the agricultural chapter in June 2000. Bulgaria and Romania were the last to open their Chapter 7 in 2002. The European Council in Nice in December 2000 declared that the EU was ready to receive new members from 2004 onwards. As a result, candidate countries concentrated on concluding their negotiations before the end of 2002, as the latest date for a candidate acceding in 2004. B. Bargaining position of the European Union 1. Uncontrollable sources a. Economic conditions Several analyses (Patterson, Agricultural Policy; Field and Fulton; Urff) ascribe the formation of the EU agricultural policy to a compromise between liberalism and interventionism within the larger architecture of European integration. It is not less true that a general concern for security of food supply was recognized by the Commission to strengthen the case in favor of continued policies of exemptions and regulations of the agricultural sector (Our farming future). The CAP objectives were given appropriate formal consideration in the Treaty of Rome, which included agriculture and trade in agricultural commodities as a core component of the Common Market - art. 38 (32 after the revision of Amsterdam) -

and provided for the introduction of a Common Agricultural Policy (CAP). By the 1970s, as a result of its protective and supportive agricultural policy, the EU had become a farm fortress: its world trade share increased; a sizeable degree of self-sufficiency in near all staple products had been achieved; and big-sized companies emerged as a result of considerable increases in farm productivity. b. Political-social context The agriculture was given support at the expense of continuously inequitable and highly controversial costs. The problem of growing productivity and static and easily predictable demand has become an enduring characteristic of the agricultural environment generating food surpluses and ever barely sustaining costs. Eloquent for the tension created is the 1988 agreement on reform which was reached only after Commission had threatened to take the member states to the European Court of Justice for not producing a budget (Patterson, Agricultural Policy). The disputes evolve around social, economical, and political issues. The income gap between the highly productive minority and the economically less efficient, but socially important majority of farmers, continued to widen. Farmers are frustrated because the CAP has failed in achieving its aim of enabling farmers to earn an income that by and large reflects the general income development and allows them a standard of living comparable to other groups of the society (Urff 38; Pelkmans). In this regard, the eastward enlargement exerts probably the most direct and challenging impact. Frohberg and Hartmann mention strong opposition from EU farmers to give reasons for the protracted trade liberalization towards candidate countries. 2. Controllable in the long-run (CLR) sources a. Policy formulation The CAP mechanism rests on the creation of CMOS for products that account for roughly 95% of the EU agricultural production. The European Agricultural Guidance and Guarantee Fund (EAGGF) supports the accompanying financial scheme. This mechanism implies various forms of market monitoring and farm support with the aim to ensure competitive advantages and

financial incentives for farmers and rural inhabitants. The agricultural funds are spent in proportion of 90% for market organizations and 10% for rural development (The Common Agricultural Policy. 2000 Review). The CAP expenditures are set to cover three purposes: Market interventions to support EU farm prices through intervention purchases, storage, and export subsidies. In 2000, the EU spent 10.6 billion on agricultural market support, i.e. 12% of the total EU budget. Direct payments (per hectare or per animal) to subsidize vegetal and animal production. In 2000, the EU spent 25.6 billion on direct payments to farmers, i.e. 30% of the total EU budget. Co-financing programs to support rural development over a broad spectrum of activities out of which national and regional authorities can select those that they consider most appropriate. In 2000, the EU spent 4.2 billion on rural development measures, i.e. 5% of the total EU budget. The last decades have witnessed marked transformations in respect to the PAC objectives and by implication to the destinations of agricultural funds. In the beginning, the EAGGF absorbed more than 70% of the EU budget (Urff 33) against 47% these days. Rural development expenditures only became significant after Agenda 2000, but the change mainly concerned the other two destinations which replaced in time each other's roles in the agricultural budgetary outlays: the share of direct payments increased from less than 10% in 1991 to close to 60% in 1997, while the importance of market interventions has declined from over 90% in 1991 to less than 40% in 1997 and is predicted to fall to close to 20% by 2006 (Swinnen 3). Agenda 2000 initiated a sweeping reform which finally was agreed on 26 June 2003, when the EU farm ministers adopted measures acclaimed to completely change the way the EU supports its farm sector from 2004 - 2007 at the latest. The key elements of the reform consist in: Single farm payment independent from production; limited coupled elements may be maintained but this payment will be

subject to a range of environmental conditions (crosscompliance). Reduction in direct payments (modulation) for bigger farms to finance the new rural development policy. A mechanism for financial discipline to ensure that the farm budget fixed until 2013 is not overshot. Revisions of the market policy for the milk sector, cereals, rice, durum wheat, nuts, starch potatoes and dried fodder sectors. b. Decision-making process Decisions with respect to agricultural markets are first taken at the national level, where the government of each member country examines the benefits and costs to itself and to political parties, regions, and interest groups within the country (Field and Fulton). The second stage occurs at the EU level, where compromises and bargains among member countries are worked out. The Council of Ministers is composed of the ministers from individual member states who are relevant to the policy proposal under consideration. For example, the Council of Agriculture Ministers usually makes decisions about the CAP, but is not charged with formal responsibility for the budgetary consequences of price policy decisions. The agriculture ministers in the member states who form the Council of Agriculture Ministers represent national interests and must approve any EU agricultural reform package at the Community level. The Agriculture Council traditionally has taken decisions by unanimous vote even though the Treaty of Rome allows qualified majority voting (Patterson, Agricultural Policy Reform). Although the fact should reinforce a Member State's general power position, a secretive attitude to the decision making process has made the compromise instrumental in the policy reform (The Economist).

3. Controllable in the short-run (CSR) sources a. Concession behavior

The considerable share of agriculture in the CEECS economies has made from the beginning apparent that the financing of the enlarged Union would somewhat follow a formula described as power politics dictate the EU budget (Baldwin et al. 159). The visible part of this behavior opposed the EU member countries to the candidate countries over such issues as extending the direct payments to CEECS farmers. According to Karlsson, the center stage has been instead occupied by intense political disputes between present Member States identified as net receivers from and net payers to the EU budget. The issue however ignited under circumstances independent from enlargement. Some net payer members - the United Kingdom, Germany, the Netherlands, Sweden and Austria were granted disproportionately lower contributions to the budget and they generally oppose any undue increase in the financial burden. That might make the present net receivers - France is the major net beneficiary of CAP - request some compensation for expected diminishing financial benefits as a result of enlargement. The result was that the candidate countries' requests in the areas of direct payments, production quotas and other supply management instruments, and rural development were delayed and elusively referred to until a Common Financial Framework (CFF) was finally issued in January 2002 (Enlargement and Agriculture). That happened just several months before the negotiations should have been concluded according to the Nice calendar and made some commentators ascribe this procedure to a take it or leave it attitude (Karlsson 33). From an internal perspective however, the CFF tried to accommodate financial control with non-discriminatory enlargement. On the restrictive side, the proposal favored gradual payments to the candidates till 2013 when the new member states would reach 100% of the support level then applicable, that is, a level estimated by Karlsson to be 20% lower than what the present system would give (60). On the conciliatory side and according to past practices of reform inside the EU, a budgetary compensation reserve was earmarked to ensure that no new Member State should find itself in a net budgetary position that is worse than the year before enlargement. Transitional periods for the adoption and

implementation of certain parts of EU legislation were also accepted for specific and exceptional instances. There was neither required nor offered any alternative as regards the revenue side of the EU budget, and the new Member States were thus supposed to contribute fully to the EU resources from accession. b. Negotiation setting In addition to constraints pertaining to internal policy workings, the scope of concessions has been also shaped by international commitments undertaken under the WTO umbrella. The EU expectedly transferred internationally the compromising approach and exercised it for long during the negotiations of the Agreement on Agriculture of the Uruguay Round (AAUR) and of the ongoing Doha Round (DR). Benefiting from a strong influence on the world market around 85 per cent of the value of world export subsidies (Matthews 9) the EU pressed for important concessions in other areas of concern (Patterson, Agricultural Policy Reform) and in spite of concerted international opposition in fact managed to provide as much protection at the end of the Uruguay Round as did non-tariff barriers in the late 1980s (Matthews 5). The consequences for the enlargement process are twofold. First, the EU afforded proposing a stable framework for negotiations by assuming that URAA commitments remain unchanged over the 2003-2010 period (Prospects 7) although the DR was initially supposed to be closed by the end of 2004. Countries in the next enlargement wave should expect by consequence a different horizon for CAP formulation. Second, the result of maintaining a generous financial support to agriculture has been achieved at the expense of drastic redistributions of payments to WTO compliant destinations. The Commissions recommendations for direct payments, quotas and other supply management measures have been designed so as to be in line with the EC comprehensive negotiating proposal which was adopted by the Agricultural Council on 20-21.11.2000, in particular, as regards the reduction of the Communitys aggregate support and the retention of the concept of the 'blue' and 'green' boxes (Agriculture and Enlargement 23). That considerably

narrowed the offer to the candidate countries as regards the levels of support that could have been admitted without conflicting with the restrictions on subsidized exports or domestic support resulting from URAA. The baseline negotiating position included the following main elements: Direct payments: Direct income subsidies for farmers in candidate countries should be phased in over a 10-year period, starting at 25% of those paid in the existing Union in the first year of accession. In order to facilitate the appropriate adoption of the CAP mechanism, the CEECS were presented the option to choose between the standard direct payments system and a simplified approach for a limited period in the form of a decoupled area payment applied to the whole agricultural area. Production quotas and other supply management instruments: It has been stated that the quantitative reference levels should be determined on the basis of past performance, i.e. to reflect actual production in a recent year, 1995-1999. The Commission provided detailed proposals on production in all the sectors with a market organization, relevant for the candidate countries. Rural development: The candidate countries have been already presented the opportunity to gain experience in the design and implementation of a co-financed policy through the preaccession instrument SAPARD. Supplementary accompanying measures will be implemented upon accession. Risk of deflection of trade: At the request of Poland, the Czech Republic and Slovakia for introduction of an import safeguard clause, the EU favored transitional measures to be decided before accession under the appropriate procedure. A scheme of flat-rate payments: A group of selfsubsistence farms should be assisted over a definite period. The Commission's negotiating position is presented in Appendix A. C. Bargaining position of Poland 1. Uncontrollable sources

a. Economic conditions The prevalence of private ownership in the agricultural sector has always distinguished Poland among other CEECS. The private sector (share of the total arable land) reached 92.3% in 1998 from 80% in 1990 (Note). Poland also weighs as the most agricultural country providing 59% of the Gross Value Added (GVA) of the five countries of the 'Luxembourg Group' (Pouliquen 7). Apart from that, available analyses (Gwozdz; Josling and Tangermann; Gorton) does not differentiate Poland from the other candidate countries in respect with the low performance of the sector. Estimates place the Polish agriculture at least 30 years behind the level achieved by the EU (Gwozdz 32). This bleak portrait is mostly explained by inadequate proportions depicting a poorly developed market economy: 70% of rural population employed in agriculture; 43% of total agricultural output accounts for un-marketable production; approx. 2/3 of the present employment is projected as labor surpluses; supply contracts (concluded between a producer and food processing plants) discipline only few crop deliveries (sugar beets, rape seed, flower and vegetable seeds); only 3% of the agricultural area represent holdings of between approx. 50 and 100 hectares (Gwozdz; Note; Pouliquen). The share of agriculture in GDP (including hunting and forestry) is 4.8% as compared to 12% in 1988. The average employment in agriculture (including hunting and forestry) reaches 25.8% of the total labor force. Cereals are the main produce providing over 20% of the total agricultural output value, followed by the production of pigs (17%), and milk (14%). Processed food products have a relatively high share in exports, where meat and meat products, fruit and vegetables as well as processed fruit and vegetable products are major items. The products that cannot be grown domestically, i.e. coffee, tea, citrus fruit as well as fish, fats, and oils of plant origin, fodders, dominate imports. b. Political-social context

Agriculture has made up a prominent theme in the Polish public life for long. In 1860, the National Union of Farmers, Agricultural Circles and Organizations (KZRKiOR), a political representative of all farmers, was established. The rural voice strengthened with the creation in the communist regime of the Communist Peasants' Party (ZSL), predecessor of the present Polish Peasants' Party (PSL), and Solidarnosc agriculture, a side effect movement of the social upheaval of the 1980s. All theses parties held a constant presence in the legislative or executive after 1989, but they more notably were joined by Samoobrona (Selfdefense), a radical and popular movement of small farmers founded in 1992. This latter party is currently credited with 20-30% of popular support (Gwozdz 1; The Economist) thanks to such promises that Poland will begin the process of secession from the EU if not granted important concessions to agriculture or other struggling sectors. The issues related to agriculture find indeed strong appeal to the Polish citizens. The food expenditure is with approximately 37% about twice as high than in the average for the EU-15 with 17.4% (Country Report on Poland 6). The income measured as Net Value Added (NVA) per active employed person reaches only 6.7% (1999) of the comparable EU-15 level (12). 2. Controllable in the long-run (CLR) sources a. Policy formulation Embryonic policies of the EU mechanism were already in place at the time of negotiations. The Agricultural Market Agency (ARR) was created early in 1990 as the main intervention organization under the supervision of the Ministry of Agriculture and Food Economy. Since 1994, the sugar sector has been subject to market arrangement similar to the EU market organization for sugar. Policy instruments included guaranteed prices, import and export mechanisms for key commodities, notably cereals, milk products, pork and beef, and a broad range of intervention policies (Agenda 2000 71; Gwozdz 10). A coherent agricultural policy began emerging in the mid1990s with the Strategy for Poland program in 1994 which included rural development as a priority, shortly followed up by

three other rural strategies designed for the long term perspective of accession (Gwozdz 16). In that context, two other institutions were created Agency for Restructuring and Modernization of Agriculture (ARMA) and Foundation for Aid Programs to Agriculture (FAPA) for a better administration of EU financial support (Gwozdz 16-19). Chambers of Agriculture have been established at provincial (voivodship) and national level under the Act of Chambers of Agriculture (April 1996) (Agenda 2000 73). The budget expenditure for the agricultural sector amounted to 9% of the total government budget in 1994 (Agenda 2000 72), but more than 70% represents expenditures for social security (Gwozdz 34). A small budget in absolute terms nevertheless contained the protectionist impact: the PSE (producer subsidy equivalent) for Poland, calculated by the OECD, was 21% in 1995 compared to 49% for the EU. Market and support prices in Poland are about half the EU prices for most products with the exception of the intervention price of wheat and pig-meat which stabilized at ca. 80% over the 1995-96 period. b. Decision-making process The beginning of accession negotiations gathered the negotiation competences around three bodies, Ministry of Foreign Affairs, Chancellery of Prime Minister, and Office of the Committee for European Integration (UKIE). At the same time, European integration departments or units were created in each ministry. The Negotiation Team was headed by the Chief Negotiator who was originally responsible to the Prime Minister and after October 2001 reported directly to the Minister of Foreign Affairs. The Team's task was to prepare the negotiation positions of the Polish Government, and to collaborate with line ministries in charge of particular chapters to be negotiated. The agriculture issues were dealt with by the Minister of Agriculture and Rural Development as a member of the Committee for European Integration. Institutional arms also included the National Council of European Integration, set up in December 1999 with the role of territorial consultations in particular in rural

areas (Pyszna and Vida 19), and two diplomats in charge with the agricultural affairs at the Polish Mission to the EU (Pyszna and Vida 28). Formulation of negotiation positions was a challenge for such newly formed decisional mechanism. A visible weakness consisted in ineffective intra- and inter-ministerial cooperation at the level of civil servants due probably to a post-communist heritage (Pyszna and Vida 37). The Polish administration counterbalanced this insufficiency by keeping a tightly centralized decisional mechanism related to the process of integration. It is remarked that in the years 1997-2001, there were no more than four key-actors and principal references (Pyszna and Vida 19-23). Their high-quality background, with important international connections, ensured Poland self-confidence and openness to negotiations allegedly on an equal level with EU counterparts. The EU officials are said to have remarked a very aggressive [attitude] on their national interests on behalf of the Polish negotiators (The Economist). 3. Controllable in the short-run (CSR) sources a. Concession behavior The imprint of the rural electorate has been especially made visible in political life. Besides Samoobrona, the Polish Families League (LPR), a catholic party, advocates a nostalgic comeback to the past era and closed borders (Gwozdz 28-29). At the same time, moderate positions of other political parties have not been able to converge on common grounds: PSL policy of promoting domestic market protection and a slower pace of privatization process has clashed with those of the socialist Democratic Left Alliance (SLD) or the center-right Civic Platform, which focused more on the link between the market and drastic modernization of the sector. In the economic realm, these concerns translated with the same ambivalence. The predicable result has been one of the most protectionist policies among the other candidate countries (Gwozdz 3). The arguments were also fed by estimates like those presented by Chevassus-Lozza and Unguru which show that the

adoption of the EU tariffs will increase Polish imports with a remarkably 16.5% against 1998 (7). On the other hand, organized initiatives developed relatively late. They mostly appeared in relation to the necessary institutional preconditions to comply with some CMOS, like for instance the producers' organizations supported by the legal framework adopted in September 2000. This fact is suggested by FAPA estimations, which indicated approx. 500 such organizations in 2002 (Gwoydz 9), with half of them in the fruit and vegetables sector that is where financial support is mostly dependent on them. b. Negotiation setting The Polish Government adopted 31 December 2002 as the date on which Poland will be prepared for accession to the European Union. While it agreed to implement in full the acquis, the Polish side expressly asserted its willingness to incorporate the full range of CAP and structural instruments as a pre-condition for assuming obligations concerning the quotas of agricultural products that are subject to quantitative limitations (Poland's Reply Jan. 2001 4). The indecisiveness on the EU part as regards its common position next to a host of other circumstantial reasons were even invoked to reserve the right to justified modification of the position paper before the end of negotiations (Government). In the framework of the accession negotiations Poland has solely raised requests in relation to the taking over by the Community of stocks existing at the date of accession and boughtin under Poland's own intervention policy (cereals, butter, milk powder and beef). The Community engaged in taking over of public stocks on the condition that the storage and marketing costs for stocks artificially accumulated in the Candidate Countries prior to accession would not be acceptable (Agriculture and Enlargement 20). The Poland's baseline negotiating position consisted in (Government): Introduction of necessary protective measures during the first few years of the membership, if trade between Poland and one

or several EU Member States leads to a justified threat of serious disturbances in the Polish agricultural market. Direct payments: In its reaction to the EU proposal of January 2002, Poland exposed a more relaxed position and accepted a gradual introduction of the financial support over an only three-year transitional period (2004 2006). The initial installment of 25% of the EU level was considered decisively too low (Gwozdz 38). Production quotas: The most important negotiation problems were referred to the production of milk, white sugar and isoglucose, potato starch, dried fodder and raw tobacco. Poland expected a flexible approach as regards the reference crop on justification pertaining to the potentially superior land productivity, as well as maintaining of jobs and income sources in the agricultural sector. Temporary authorizations for establishments processing and placing on the domestic market raw milk and milk based products, as well as meat and meat products for which production has not been fully compliant with all EU veterinary requirements. Establishment of a new common market organization in table potatoes and for expansion of the list of agricultural products covered by the EU financial support, such as herbs. Temporary financial support (3 years from the date of accession) for expenses borne in connection with the establishment of the Integrated Administration and Control System (IACS) up to 50% of the total cost of the System. D. Bargaining position of Romania 1. Uncontrollable sources a. Economic conditions Romania is the only CEEC that continues to benefit a developing country status on a multilateral level. This status is largely explained by the importance agriculture still plays in the Romanian economy. The contribution of agriculture and forestry to the GDP was constantly significant and increasing from 13.7% in 1989 to 18.6% in 1992, but reversing to 11.4% in 2000. The number of the active population employed in this sector also

showed an ascending trend and reached a record 42% of total employment in 1999 compared to 27.5% in 1989 (Romania's Position), similar only with the beginning of the 1970s. With 4.9 million people working in agriculture, fishery and forestry, Romania will have the highest employment in agriculture in the EU-27 (Country Report on Romania 6). Until 1989 private farmers held 25% in agricultural production and increased the share to 87% in 1996. The period of 1990-91 witnessed the break-up of the former regime's agricultural cooperatives and the introduction of a new system of land tenure. The good auspices for reform were impeded by an impractical legislative action, which was amended for its most part from 1991 to 1998. The process delayed the formation of a market for land and hence led to severe fragmentation of land and animal production. An exceptionally high 80% of the utilized agricultural area (UAA) is occupied by individual holdings not exceeding 2.4 ha UAA (Pouliquen 39; Leonte et al. 32), whereas 95% of milk-cow farms hold 1-2 heads as compared to the EU average of 17.5 heads (Academia Romana, Restructurarea 90). The value of the global agricultural production constantly remained to a level of 95-98% of its 1989 value, the smallest decrease among the CEECS except Albania. The record was explained by the sheer importance of self-consumption, which may reach 50% for pigmeat, fruit and vegetables, 38% for milk, and 33% for poultry (Academia Romana, Impactul 131-2, Implicatiile 17, Restructurarea 90, 111). The export consists mainly of unprocessed agricultural products with low added value, such as live animals, cereals and oilseeds, while Romania is a net importer for each of the agricultural products groups. b. Political-social context The rural habitat is emblematic for the huge tasks Romania has to confront domestically on the way to accession. The main agricultural regions exhibit particularly low degree of modernization: the self-employed and unpaid family workers account for over 70% of the employed population; persons with primary and secondary education account for 60% of the total

employed population in the rural area; university graduates working in the rural area may account for as low as 0.8% in some regions; 57% of farmers are poor and as much as 56% of incomes per peasant household are in kind (Leonte et al. 20-24). The statistics depicts a bleak landscape, which is also suggestive of the modest living standards in Romania. The average citizen has to spent on food approximately 58% of its total income which is about 3.3 times higher than the average for the EU-15 of 17.4% (Country Report 6). The relative availability of food has particularly worsened during the communist regime, which neglected agriculture, supply conditions and rural development all together. The only political party representative for farmers the Christian Democratic National Party (PNCD) was banned in 1947, while its personalities were arrested or went in exile. In 1990, it resumed activity and even formed a coalition government from 1996 to 2001, but its representation of the peasants' goals and interests has reached little visibility. Currently, its popular support hovers around symbolic figures. 2. Controllable in the long-run (CLR) sources a. Policy formulation Apart for land reform, the reorientation to market economy has not purposefully turned attention to the problems of agriculture. First rural development initiatives appeared in 1998 as a result of the beginning of enlargement negotiations (Tesliuc 138). Ideology has provided a shaky foundation for policy reform; opinions have been widely dispersed among proponents of market liberalization or supporters of group interests. As documented by Tesliuc, the obvious inexperience with the workings of a market economy has made agricultural producers made constant recourse to centrally planned indicators. Policy instruments were extensively used but only to underscore once more an apparent lack of definite objectives. Schemes of support such as direct aid, subsidized inputs (seeds, fertilizers), preferential credits, stocking interventions, guaranteed minimum purchase prices greatly favored state-owned enterprises or farms supplying all or part of their production to state agencies

at prices lower than on the open market (Academia Romana, Restructurarea 18; Tesliuc 122, 131). The reform proceeded at an accelerated pace after 1997 with initial help from the World Bank. In a first phase, the formulation of policy was fundamentally shaped by acute structural impediments. Especially the early decisions of the Romanian government seeking out of social concern to oblige producers to sell cheaply through the state distribution network turned out to have created a devastating influence (Romania's Position). The resulting price scissors affected the sector a long period, between the liberalization of industrial products prices in 1992-1993 and the liberalization of agricultural products prices in 1997. In a second phase beginning with 2000, the authorities began elaborated increasingly consistent programs and regulations mainly in relation to the harmonization of the Romanian legislation with the EU legal framework (Country Report 02). Strategies for the development of agriculture, the food industry and forestry for the period 2001-2005 and beyond were elaborated and specific policies, structures, and legislation required to comply with the CAP were identified. In 2001, the allocation from the state budget for agriculture and forestry was more than 400 million, but the level of domestic budget support for agriculture - about 332 million in 2001 remained steady in real terms over 2000-2003 (Country Report; Regular Report 2003). b. Decision-making process The imperative of accession has led to institutional development and co-ordination of the activities of integration both at central and local level. The Ministry of European Integration (MIE) was established in 1997 and assigned the tasks of a former Department within the Ministry of Foreign Affairs (MAE). Departments of European integration were set up within the ministries and in the local public administration structures. MIE coordinates the negotiation process. The ChiefNegotiator has the rank of Minister-Delegate. At the level of each ministry, the accession preparation is coordinated by Directorate of European integration (Scarlat and Popescu 19).

The agricultural trade tasks have been kept by the same hierarchy within the Ministry of Agriculture, Food, and Forestry (MAAP) during the post-transition period. The Ministry was still perceived in 1997 as an institution of the state farms (Tesliuc 135) and easily influenced by the producers' lobby (144). By consequence, in 2002, needs for conceptual work and necessary procedures to prepare the administrative structures were at very early stage (Scarlat and Popescu 37). Specific targets have been identified lately with the administration of the CAP. Loosely developed inter-ministerial working cooperation in this area makes the more so necessary a timeframe long enough before accession in order to experiment and effectively wield the required CAP instruments (Ciupagea et al. 28). For instance, many financial commitments were often contained because of the opposition from the Ministry of Finance (Tesliuc 145). 3. Controllable in the short-run (CSR) sources a. Concession behavior The inexistence of any viable political back up has not been offset expediently by the organization of agricultural professional associations. The necessary adoption of some CMOS, especially for fruit and vegetables, has compelled the Government to issue a specific law in 2001 and apply for international aid to speed up the process. The efforts have been hardly satisfactory: according to some estimates (Academia Romana, Restructurarea 52), 85% of producers do not belong to any professional association. A national commercial presence on food markets is similarly just emerging. Imports from the EU increased dramatically in the last years, while processed products have still to pass the necessary quality standards for export. For example, Romania has no authorized company to export sausages on the Community market and only five slaughterhouses for poultry meat are licensed to do so in 2004 (Ziarul Financiar). These circumstances make the nascent commercial interests not too visible and by consequence create no credible conflict between the Romanian side and the EU. b. Negotiation setting

The Romanian officials have not clearly made known a certain concern for agriculture. A protectionist stance was adopted during the URAA with resulting average binding tariffs of 143.5%, one of the highest in Eastern Europe, whereas the officials have constantly leveled down the applied tariffs to levels similar to those of the most liberal CEECS as the Czech Republic. Given the general adverse conditions for the development of agriculture, it is barely discernable what the likely effects of this liberal stance could have been expected. Yet both multilateral and enlargement negotiations are to provoke further market openness. As a developing country under its WTO commitments, Romania chose to limit the level of domestic support to 10% of the value of its production. Although that is by no means very restrictive in relation to providing support or export subsidies to its agricultural products, Romania lacks the real financial means to provide this kind of support. In 2000 for instance, export subsidies were about 5.4 million for wheat and maize and about 185,000 for chicken and pork (Country Report 02). In 2004, when its present status expires, Romania however has to revoke its present derogations and presumably negotiate reductions in the value and quantity of the subsidized exports. Romania has higher import duties than the Union on most products and consequently the adoption of the Customs Common Tariff (CCT) will lead to a lower protectionist level. As regards deflection of trade, important share of imports, e.g. sugar and bananas, exempted from duties through PTAS will not pose any problems because the partners submitted to preferential trade are excluded from compensatory payments. Romania put forward the following baseline negotiating position (Romania's Position): Transitional periods of 5 years from the date of accession to adopt safeguard measures for the import of agricultural products from one or more Member States; Transitional periods for complying with various Community regulations regarding veterinary and phytosanitary issues in the production for wine, pig, meat processing, and milk;

 Direct payments: the adoption of the period 1985/9 1990/1 to determine the base area, and the reference period 1990 1994 for rice. E. Summary The agricultural dossier contains a substantial 'bargaining area' of negotiable components that frame strategic games between the EU and each candidate country. The stakes in these games are engendered by various constraints with variable degrees of control the partners may exert upon. Depending on their capability to wield a certain influence on these variables, a potential bargaining power emerges in the issue area. The potential bargaining power is manifest in the way the countries put forth their negotiating objectives. The EU has been in the position to structure the negotiations from the beginning as to their scope, legislative framework, and subjects of bargaining. As regards the agricultural aspects, the EU and the two candidate countries selected for discussion considered clearly discernable even if largely opposite objectives in the areas of production quotas, direct payments, base area and transfers to modernize rural areas. As is normal in negotiations of this type, the conclusion on the issue of contribution to the budget was left until the last moment: 2002 for Poland and 2004 for Romania. In effect, as Josling et al. suggest, this tactic acted as a balancing item, with payments to the prospective members (or reduced collection of funds from them) used to compensate for the losses in the negotiation process (25).

VI
Formulation and solutions of strategic negotiations

A. Assessment of issue bargaining power 1. Enacted power for EU a. Commitment he EU has spent most of its negotiating effort to make obvious that the interplay of demands and concessions during negotiations rests on a two-pronged argument: that enlargement should proceed in observance of the needs to preserve the social functions of agriculture; and that the economics of integration plays a complementary role in formulating the basic negotiation positions. As regards the first part of the argument, the three basic CAP pillars - CMO, Community preference and financial solidarity withstood any major revision on strongly defended social arguments (Our Farming Future 15; COPA). In spite of ambiguous economic justification of the CAP objectives (Pelkmans), problems with support for production were permanently answered by a compromise to reorganize the destination of funds away from production and toward maintenance of the rural habitat. The decades following the completion of the common agricultural market in 1968 witnessed a progressive shift of the financial burden towards Member States either in the form of co-financing instruments or directly to producers as limitations on agricultural spending. At the same time, the agricultural lobby insists that the solution to the world trade problems is the supply management. A

EU consumer spends approx. 12% of his budget on food, while in the beginning of the 60s this could amount to 50%. Thus, the consumer is not the victim of the agricultural policy as it is often suggested (The Export Subsidies 5). The reforms of 1992 and 2003 probably represent the most practical responses in favor of more support for non-productive rural activities. There have been found new destinations and goals: compensatory aid payments to farmers for the associated loss of income, limits on arable land for large farms, and an amalgamated list of such rural policy measures as soil amelioration, agroenvironmental schemes, promotion of tourism and handicraft. Net payers played an important role during the negotiations of Agenda 2000 when they successfully achieved to redirect budget expenditures in a more restrictive direction than before (Karlsson 29). The newly prevailing social concern of the Community has come to be known as the European model of farming (Fischler; CAP 2000 Review), a concept so aggressively defended internationally that it substantially shaped the strategic options during the current multilateral negotiations. Fierce opponents of agricultural protectionism like the Cairns group have eventually had to indulge in the EU argument and adopt a more cooperative approach (Urff 39). As for the second part of the argument, the EU officials were concerned that the CAP could make ineffective the economics of integration by overestimating the CEECS capacity to absorb the EU funds. In its position papers, the EU has constantly toned down its partners' claims to increased financing by arguing that large inflows of money into the CEECS rural economies would potentially cause serious social imbalances and slow structural transformation. Since experience shows that it will be at least five years for the effects of EU programs to be felt, and at least ten for their full impact to be seen, in the early years levels of direct payments should remain relatively modest. As the EU officials explained it, ten years would appear necessary before the normal EU-level of direct payments should be reached (EC Procesul de extindere, Analysis of the Impact 5-6).

Swinnen observed that financial support pledged to CEEC10 in the agricultural area from the EU budget would amount to more than 70% of their 1999 agricultural GDP (9). That sort of considerations raised the question of the merit of the candidate countries to make claims on any form of financial support. In accordance with the Berlin FF, the issue of direct payments was first not recognized as a negotiation issue (Poland's Reply 5), whereas in its Common Position of 30 January 2002 (Enlargement and Agriculture), the EU took the reform of PAC apart from the negotiations on the agricultural dossier. A similar issue was raised by the accession countries' demand to consider their production potential on the basis of historical levels, that is, pre-1989 indicators, which would have generally biased the reference quota and payments levels towards higher levels than those currently prevailing. The EU firmly sustained to orientate the quotas on the much lower present production on arguments regarding distorted statistics by the communist regimes and a better match with the actual production structures and consumers' preferences (Analysis of the Impact 910). The EU has been involuntarily helped by its partners in sustaining its points. Poland and to a greater extent Romania have not been able even to prepare conclusive statistics for some products. Romania confronted a particular situation when it incompletely used the export quota in its trade relations with EU. This dismal performance was explained by the selection of the 1987-1989 reference period which disregarded distortions created by the communist regime (Leonte et al. 52). b. Alternatives The no enlargement option would have come at a moderate price especially because the time factor was not so important. The date of accession was conveniently postponed from 2002 to 2004 for the first wave of candidates, and the decision for the next enlargement does not unequivocally favor any deadline. Baldwin et al. express a shared view when write that Eastern enlargement is not really about transfers and narrowly defined economic benefits (168). In this perspective, enlargement was

thought not to depend essentially on agriculture dossier or any other topics of crucial monetary importance for the CEECS. On the other hand, the EU finds itself constrained to reform, though in self-imposed limits of socially justifiable interventionism. The ongoing multilateral negotiations make the CAP reform inevitable and by consequence offer the EU a credible rationale to indulge in only parsimoniously the CEECS demands for production support. Besides, the CAP expenditures were successively imposed to rise no faster than 74% of the Union's GDP growth, as well as an annual upper spending limit of 40.5 billion (at 1998 prices) by the Berlin Summit. For the longer term, it is argued (Mayhew 13) that this perspective considerably balances the EU arguments toward more satisfactory agreement on reference levels than on direct income subsidies to farmers. c. Information Various scenarios were taken into account when the Commission presented an information note on the Common Financial Framework (CFF) for 20042006 in January 2002 (Enlargement and Agriculture), but under all circumstances the enlargement payments for the period 20042006 were estimated at a maximum of 0.23% in the EU-15 budget in 2013. The sums were also considered in the time perspective of the next Financial Perspective, and no apparent difficulty was found as regards their absorption by the net payers (Karlsson 66, 101). After correcting the Berlin FF to allow for the increase in the number of countries joining the Union (10 rather than 6 as assumed at Berlin) and the date of enlargement (2004 instead of 2002 assumed at Berlin), the calculations showed that the sums foreseen in the FF would be coincidentally enough to cover the cost of rural development and market support (around 20% each). The key issue became thus extending direct payments to CEEC farmers, which would incur an additional cost of 6-7 billion (Karlsson 66). Expectations converged to justify these concerns. Estimations of enlargement impact showed that the CEEC-10 would double the number of farmers under the EU subsidy scheme and would increase the area under cultivation by 42%. Besides, simulation models (Josling et al.; USDA; qtd. in Gacz and Wyzan, Time Pattern) bring forward convincing evidence that the CEECS

have the potential to destabilize some markets. In fact, the EU abandoned rye intervention altogether because of the foreseen impact of the Polish productive capacity (Costs and Benefits). Since, as a rule, the price level in the candidate countries is lower than within EU-15, farmers would suffer no loss due to this factor and hence there would be no need to pay compensation. Besides, simulations run for the candidate countries (Analysis of the Impact 11) show the huge task of restructuring in order to fill the requested quota levels. For example, only after a longer adjustment period until 2015, would milk production reach the levels of 34.45 Mill. to., which is even below the quota level of 34.8 Mill. to. currently requested by the Candidate Countries. A first hint to the possible balance of bargaining strength on these areas came before the negotiations started from the Commission's suggestion that decisions on the coming 2007-2013 FF should be made prior to accession. Budgetary negotiations on the next financial framework were eventually agreed to start early in 2005. Additional particular data eased further the EU task. Estimates of external trade effects show a EU export increase of 20.7% due to the removal of trade barriers with CEECS with Germany the main beneficiary. The effect stems mainly from sales of fruit and vegetables, oilseeds, cereals, meat and beverages (Chavessus-Lozza and Unguru 9), that is markets where the CEECS have considerable productive potential. The alignment to the Common Customs Tariff is to affect only slightly the relations with the third parties which would be entitled to claim compensation according to the article XXIV of GATT only for foods (USA, Canada, Israel) and mushrooms (China) (Chevassus-Lozza and Unguru 12-13). Consumers' concern about food safety (Urff 37) has received mutually beneficial arrangement on transitional periods for the modernization of processing establishments. 2. Enacted power for Poland a. Commitment Poland has proven a decisive attitude to support the rationale behind the CAP mechanism. From the very beginning of the

negotiations on Chapter 7, in July 1999, the Polish Government approved the structural policy guidelines - Coherent Structural Policy of Rural and Agriculture Development - that assert Poland's support to defend the European model of agriculture together with its multi-functional character. In other instances nevertheless, Poland attempted to play hard the negotiation game. That aspect has become manifest especially in opposing organized forms of protest to trade liberalization. Poland was unique among the other CEEC for strongly defending its farmers interests by initiating an 18-month trade war with the EU (Business Central Europe). The agreement reached in September 2000 has been characterized as the deepest and widest coverage of any of the recently concluded agreements on agricultural trade liberalization with the CEEC (Breakthrough). The Commission could not stop observing constant disturbances of the sector due to a potent lobby (Gwozdz 25-31). The position in negotiations had in fact more nuances than these both firm positions may suggest. The efforts were heavily supported by the importance of rural life for the Polish society. Kolarska-Bobinska presents the results of a survey which shows that 60% of farmers want to pursue farming in the future compared to 40% three years ago (3). Another survey from the Public Affairs Institute stresses dissatisfaction with support from the State in agriculture for approx. 85% of rural population and more than 90% of farmers (qtd. in Gwozdz 35). Following the EU Common Position of January 2002, the Polish response claims for solutions to fully compensate for the negative impact of unequal support on the competitive conditions (Gwozdz 37) but could not obscure the divergent opinions between PSL and SLD as regards more favorable concessions. The approaching date of accession made PSL more open to compromise as proved in the case of the transitory phase for the sell of land plots to foreigners (Gwozdz 38). b. Alternatives Poland embraced the perspective of an applicant country: it was its goal to ask for membership provided the accession criteria are fulfilled. Whatever the role of agriculture in the Polish society,

the EU membership has been seen as a way to initiate policies and participate in decision-making at the international level. This will also allow Poland to have a positive influence to help solve strategic international problems, which would not be possible outside the Union. The country reportedly has ambitions to belong to the six big member states of the EU and to benefit from a particularly strong position in the EU decision-making process (Pyszna and Vida 9; The Economist). That general position has been internally sustained on an almost consensual basis. All key actors even from the beginning of the transformation process pledged strongly in favor of accession to the EU, as the only guarantee for Polands strong international position and the success of transformation. A weakness of political forces opposed to EU integration can be attributed to the fact that their key politicians have a poor knowledge of EU policies and poor linguistic skills (Pyszna and Vida 30). In favor of this flexible attitude, much helped a fallback position Poland be prepared in an advanced stage of negotiations. The proposal insisted on topping up EU direct payments from the national budget in addition to shifting 60 per cent of EU rural development funding to direct farm payments. The EU considered that if one ruled out the idea of maintaining agricultural tariffs after Poland joins the EU, there might be some room for negotiation on switching EU rural development funding into direct payments (Poland to back down). c. Information The literature on the macroeconomic impact of enlargement in the candidate countries has just begun producing first assessments and the commentators agree that the gains will in general be substantial. Baldwin et al. estimated an income effect of more than 18% in seven candidate countries, largely due to increases in foreign investment. Breuss finds a positive impact on GDP (average 20082010) of 5.65% for the Czech Republic, 8.02% for Poland and 8.4% for Hungary (qtd. in Karlsson 43). Beyond the overall estimates, at the national level, lack of information on costs and benefits of EU accession and a 'politicization' of the public debate largely replaced in Poland the appropriate information. Farmers although appear informed in

proportion of 93% about the phrase Direct payments for farmers, their understanding of what this term means decreased to 37% of them. They prove to be even more ignorant against other CAPrelated acronyms like IACS and SAPARD (Kolarska-Bobinska 45). The reactions to this need varied greatly. The Agricultural Circles took the initiative of creating an information center in Warszawa on enlargement opportunities and costs for Poland (Gwozdz 30). On the other hand, politicians from the center-right and the left wing of the political scene tend to use European integration as an argument to justify the rationale for difficult internal reforms to the public (Pyszna and Vida 9-10). 3. Enacted power for Romania a. Commitment Romanians officials put much optimism on their agenda as to the agriculture issues. At the opening of negotiations on Chapter 7, the Chief Negotiator pledged to negotiate till blood comes and stressed the potential of [agriculture that] will influence both the common and international markets after accession (Ziarul Financiar) amidst continuously low yields, in both absolute and relative terms. For example, Romania's demand of a sugar quota of 500,000 to had to be compared with the average level of production of 99,000 to in 1998 2002. However a bit of realism could have been hardly thought. Ideas of free agricultural markets and of unrealism of support for agriculture in a poor country were spoken out (Tesliuc 142, 147) in the milieu of an obvious lack of coherent program on behalf of the administration. Romanian analysts have not hesitated to confirm this perspective in comments that underscored the problem of modest and not credible position papers (Leonte et al. 84-85). In general terms, some background papers (e.g. Academia Romana, Impactul, Implicatiile) justified the negotiating position in terms of comparable positions of more advanced candidate countries. That meant that the results would plausibly incorporate the highest levels of payments or eligible quotas, even if intractable problems related to statistics, market organization or credibility of data were admitted.

The negotiators eventually made public that the strategy of negotiations was conceived to consist of the following focus areas: rural development; arable land for cereals; animal breeding; wine and vineyards; and processed foods from milk and sugar (Romania a finalizat). b. Alternatives The option of non-accession to the European Union's structures has not made any sense, if such issue had been ever put forth. For Romania, the cultural bond, including here the attachment to free and democratic values, has epitomized the strongest link to Western Europe for considerably long part of its history, and seemingly held back an equally important option to have developed. No personality has ever credibly voiced any counter-argument to integration irrespective of its rationale. The economics provides substantial motives (e.g. Daianu and Vrnceanu) to regard the integration process as a predictable event as well. According to a survey (Corporate Readiness), only 8% of the firms made estimations of the accession costs and just 4% assumed complete knowledge of the acquis, whereas there is however a remarkable 92% of the interviewed managers which favor accession. Integration has thus come to be perceived in a familiar sense, confirmed by one of the strongest popular support among the other candidates, which is by no means a result of costs-benefits analyses. c. Information The common sense optimism was partially supported by research estimates on the impact of enlargement. Some concerns were concealed because, for example, data on an ever-deteriorated position as regards agricultural trade enjoyed little visibility. Such a study by Chevassus-Lozza and Unguru pointed out that Romania would see an import increase of 7.3% by aligning downwards its tariffs to the CCT (1998 base year), as well as an export decrease of 3.5% as a result of trade diversion against 1998 (7, 9). The general tone expressed by the authorities in such instances was of warning instead of cooperative approach and dissemination of information.

The adoption of CMOS and the corresponding new equilibrium of prices are likely to favor producers of the main branches. There are expected gains for cereals (less wheat), sugar, milk, beef-meat, cattle, sheep-meat, poultry-meat, tobacco, and possibly wine, while losses are envisaged only for pig-meat, fruit and vegetables, and possibly eggs (Academia Romana, Impactul 150-3). The Position Papers do not differentiate between the 1986/89 and 95/99 periods and express the preference for each market for the former. Available statistics suggest that a more detailed perspective would have been appropriate. Thus, the recent period has proved more advantageous for certain vegetal e.g. cereals (wheat, maize, and oat), oilseeds, fruit and animal e.g. milk productions (Academia Romana, Implicatiile 46-48). Incomplete statistics has turned out to be in its turn a serious disadvantage in formulating the negotiating positions. The last census of 2002 was second only to the one of 1948. That made essential data for specific market organization to be unavailable, and the cases were plentiful: milk distribution channels, fruit and vegetables, durum wheat, wine cadastre, cattle on age categories, milk cows (Academia Romana, Impactul 14, 64, 142). In general, little information has been publicly made available. A survey (EuroBarometru) showed little preparedness as regards the agricultural issues. Over 44% of the rural population considers that the agriculture of Romania is not yet ready for accession, while 29% have no opinions on the modernization of the Romanian village. Considering that when the data were gathered the selection of SAPARD projects had already started, the degree of information concerning this program substantially financed by the EU is quite low: 68% of the rural population never heard of SAPARD; of the 32% who heard of SAPARD, only half consider the program is addressed to them. 4. Summary The EU plays strong on issue bargaining power. The Commission proposals make clear that the candidate countries will be treated unequally for at least a decade after membership. It will continue to support the rural habitat, but is not willing to cause

imbalances in candidate countries by huge payments. It emphasizes the functions of agriculture in addition to food production such as preserving the cultural landscape and contributing to the economic and social viability of rural areas. It has succeeded in maintaining the principal objectives of negotiations: Progressive introduction of payments to farmers Reference quota levels specific to the most recent period. Poland is determined to defend the interests of its agriculture but nevertheless is eager to find appropriate solutions within the general context of enlargement negotiations. Poland plays weak on issue bargaining power although provided enough time constraints for the EU it could have adopted a strong position. It was quick to compromise on some issues (e.g. the transitory period for IACS or the sale of agricultural land plots), and it has not succeeded in persuading its partner on some issues deemed essential by Polish negotiators: Equal competitive conditions More favorable recent yield estimates Potato market organization Romania played the negotiating game until June 2004 when the Chapter 7 was provisionally closed, half a year earlier than available estimates indicated. There are arguments that a weak issue bargaining power accommodates at best its position: a fragile political support, sparse informational context, heavy reliance on food consumption, and mostly a poorly developed state of agriculture, economically and institutionally, all converged to this conclusion. Romania either did not formulate demands, which were finally claimed as successes of negotiations such as Increased funds for rural development Topping-up of direct payments or extracted no result from negotiation on important initial demands: Application of safeguard measures More favorable yield estimates B. Assessment of general power and institutional stability 1. A qualified view on general power

This study adopts the Nice Treaty results on decisional power within the Council alongside corresponding gametheoretical assessments as an adequate guide to general power. Thus, strong general power is the attribute of the EU and Poland, while a weak position describes Romania. The section on the 'Agricultural dossier' strengthens the argument on the EU position. As regards Poland and Romania, additional observations on the Treaty of Accession and ongoing negotiations of the new European Constitution help reinforce with factual arguments the referred theoretical conclusions. The case of Romania is more obvious: it had no role to play in structuring any negotiations, nor did it raise sizeable thorny problems. As for Poland, this candidate lived up to expectations by having built a high profile European presence even before its application had been approved. Its magnitude is impressive: first, Poland joined Spain to oppose the project of Constitution mainly on voting power grounds; second, Poland, plus Estonia enrolled a group of EU countries Spain, Netherlands, Portugal, and Italy threatened by the free will of two big Members France and Germany in applying the Stability and Growth Pact; third, in January 2003, Poland adhered to a group of eight European governments which signed a letter of support for the US-led war in Iraq. Finally, after signing the Treaty of Accession, Poland counts as the CEEC candidate which came away with the most exemptions (43) in the form of 'transitional arrangements', and whose particular demands (e.g. to top up direct payments from national, as well as European funds; treasury facilities; management of public stocks of agricultural products) made the EU also extend them to other candidates. 2. Institutional stability This study accepts the results of specific research on institutional capacity in order to hypothesize on the stability of the partners' domestic coalitions. The convergence of results admits stable regimes for the parties concerned, i.e. EU, Poland, and Romania.

C. Outcomes of negotiations The objective of the strategic analysis of negotiations is to predict the expected outcome in the generic form of cooperative and non-cooperative strategies; the practical meaning refers to high/low concessions when describing the strategies' payoffs. A cooperative approach to negotiations implies high concessions while a non-cooperative approach yields low concessions. Combinations between the two are also possible. For the first wave of candidates, the general results of negotiations could be summarized as follows (Report on the Results): Transitional periods were conditionally negotiated in the veterinary and phytosanitary sector; Direct payments will increase by percentage steps to reach 100% of the then applicable EU level in 2013; Direct payments may be topped up to a maximum of 100% of EU level; Public stocks resulting from a new Member States marketsupport policy will be taken over by the Community; Deflection of trade in agriculture will be covered by a general economic safeguard clause provided for in the Accession Treaty for a maximum period of three years; Reference quantities were agreed on the basis of recent production and taking into account acceding country specific situations (e.g. drought). The discussion centers on the final terms agreed to by the negotiators. From the Poland's perspective, these terms are summarized under the main headings in Appendix A. At the end of negotiations on the agricultural dossier, the EU and Romania arrived to an arrangement that does not differ from the one above mentioned, except for the provision on the safeguard clause, which has not been agreed this time. For both countries, the agreement specific to the CMOS is presented in Appendix A. 1. The EU-Poland strategic game The constraints, which modeled Poland's behavior during negotiation, determine two possible situations for this candidate as

depicted in Figure 5 below. As the EU always plays a PD game, the solutions of negotiations are represented in two strategic structures, (1) and (2) in Figure 6.
Issue resources and overall power (Player) Issue weak Power strong (Poland) Issue strong & power strong (European Union) Stag Hunt 4,4 1,3 3,1 2,2 Institutional stability Stable Prisoner's Dilemma 3,3 1,4 4,1 2,2 Prisoner's Dilemma 3,3 1,4 4,1 2,2

Figure 5. The EU-Poland strategic game: Representation

C C Poland ~C (1) C C Poland ~C (2) 3,1 4,3 4,1 3,3

European Union ~C 1,4 2,2

European Union ~C 1,4 2,2

Figure 6. The EU-Poland strategic game: Solutions

A Polish interpretation of the results of negotiations was that Poland did not succeed in reaching its negotiation target (Costs

and Benefits 109). The Appendix A nevertheless shows a mixed picture of concessions and in some instances, e.g. diary production and potato starch, there are significant differences in favor of Poland. The solutions presented above suggest that the two partners initially found no consensus in issue area only to progressively reach for mutual agreement. In situation (1), which is a symmetric PD game, both countries have the dominant strategy of choosing a noncooperative approach ('~C'). The partners arrive here at no consensus '~C~C' - in negotiations. In situation (2), it is only the EU which has a dominant strategy playing '~C' and the game reaches the same equilibrium '~C~C' because Poland would predictably also choose not to cooperate. The interesting feature of this strategic interaction is the prediction of the same equilibrium and the possibility to reach a better outcome for each partner in both situations if they cooperate. There is a mutual benefit the negotiating partners extract if they agree on high concessions on their agenda. 2. The EU-Romania strategic game The negotiations proceeded at normal pace and finished sooner than expected in June 2004. The EU does not change its behavior during negotiations and again plays a PD game. Romania is constrained to a Leader game. The possible outcomes are proposed according to the figures 7 and 8 below.
Issue resources and overall power (Player) Issue strong & power strong (European Union) Institutional stability Stable 3,3 4,1 Prisoner's Dilemma 1,4 2,2 Leader 3,4 1,1

Issue weak & power weak (Romania)

2,2 4,3

Figure 7. The EU-Romania strategic game: Representation

European Union C C Romania ~C 2,3 4,1 ~C 3,4 1,2

Figure 8. The EU-Romania strategic game: Solution

The EU alone follows a dominant strategy that expectedly is not to cooperate. Romania would find in a cooperative approach the best outcome given the circumstances. As a result, the analysis leads to an equilibrium in which Romania 'cooperates' and agrees on high concessions, while the EU 'stands firm' and maintains low concessions. The strategic situation does not invite the parties to find ways to improve their gains: for Romania, it would be hardly imaginable to attempt to arrive at '~CC', its next better payoff, because the EU would have only to reach its worst outcome; for the EU, the equilibrium rewards the best payoff of the game. 3. Discussion The analysis reveals several pertinent questions to elaborate on. A first set refers to the accuracy of results: Do the analytical representations of real situations reflect what in fact happened during negotiations? How did Poland and EU find ways to cooperate? In the case of Romania, things appear most simply to explain. Comparison between the initial demands and the results of negotiations clearly indicate a maximum degree of lenience on behalf of this candidate. Only for crops and beef, the results do not depart much from the request; for sugar, tobacco, milk, and sheep meat the negotiated quota are about half the original demand, whereas several other areas (e.g. rice, potato starch, fruit and vegetables, fibers, and honey) received no mentions. This latter treatment is also specific for some related issues, either financial (e.g. inclusion of the Romanian varieties of flax and hemp for fiber and registration of national tobacco varieties in view of being included in the scheme of production premiums granted to

producers) or non-financial (e.g. a transition period of 3 years in order to implement at national level the policy of non-vaccination against classic swine fever). The image is completed with the observation that in other several areas for which agreements were eventually agreed e.g. seeds, hops, nuts, and partially for milk and beef - Romania stated that it would specify later the statistics required to consider the appropriate market support and was thus not even in position to make a proposal. That attitude is explained by the fact that at the time the Position Paper had been submitted, the first General Agricultural Census after 1948 was carrying out and no reliable data were by consequence available for the purpose of negotiations. The EU-Romania game however raises the intriguingly possible occurrence of the event 'CC', because one may ask why could Romania value it less preferably than 'C~C'? One has to recall here the argument that a double weakened position (overall and issue area power) engenders the lowest level of compromise, which is well manifest in the final results of negotiations. The economic meaning of this behavior is thus understood best in terms of constrained limited ability to ask for and expect concessions from the negotiating partner. As for the EU-Poland game, both parties began negotiations on severely intractable positions which are suggestive for the initial '~C~C' equilibrium. Some basic principles of negotiations were considered 'leave it or take it' issues. Poland stated for example that the obligations [in respect of direct payments] might be effective only if the supportive measures for agriculture - identical to those enjoyed by farmers in the EU Member States - are ensured (Poland's Reply 6, 30). In its turn, the EU stressed that no provision should be made for safeguard measures against imports from EU Member States and decided to address the risk of deflection of trade due to Poland's accession, where necessary, through transitional measures before accession under the appropriate procedure (Accession Negotiations Jan. 86). In fact, both parties eventually indulged in the other's arguments and thus found a consensual approach.

The way to a cooperative outcome has been paved with significant concessions on behalf of both parties. Poland had to leave aside demands that were initially put forth authoritatively. One important example refers to the establishment of a Common Market Organization for potatoes (Poland's Reply 52). The Polish team emphasized that the issue of establishing the CMO of Cotton Market was justified in the past by the enormous economic importance of this crop for Greek agricultural producers. They continued the argument and stressed that the market of edible potato similarly is a considerable market for Polish agriculture and Poland is one of the greatest potato producers in the world. Other examples of Polish demands which did not meet the EU approval include: financial assistance from the EU to part-fund the employment and training of the additional personnel needed to implement and manage the EAGGF Guarantee payment system; inclusion of the varieties for fiber crops artemida, alba and wiko in the list of EC flax varieties; grant of export refunds in relation to the cereals used for production of Polish vodka exported to third countries. As for the EU, it had to confront one major Polish request that the minimum requirements for the recognition of producer organizations should be a minimum number of 5 members and a minimum value of marketable production provided by the members of 100,000. The EU's first reaction was that the application of such low thresholds in a large area as the whole territory of Poland would not be justified (Accession Negotiations Jan. 94). The final agreement (Appendix A) observes the Polish position. In another instance, the EU again proved conciliatory against a Polish innovatory proposal to complement direct aid paid to a farmer up to the total level of direct support he would have been entitled to receive in Poland prior to accession under a like national scheme. The EU conceded that Poland should be given that possibility on the ground that it had applied national direct payments to farmers before accession (Accession Negotiations Apr. 89). That case set a pattern and was followed during negotiations with Romania as well.

A second set of questions, which this analysis invites to, refers to close scenarios that could have been seemed plausible in the enlargement game: To what extent does coalitional or institutional stability matter? How could Romania have improved its bargaining power? The responses are suggested by different situations of the games presented in Appendix B. The presumption for discussion is that the EU continues to play a PD game which is the most plausible variant given the way the agriculture dossier was structured and negotiated. If one leaves aside conditions (2) and (4), which were played by Poland and Romania respectively, the remainder stands for the whole possible range of game situations. It is interesting to note that institutional stability matters significantly for Poland. Under the same constraints of 'issue weak' and 'power strong', these negotiations would have concluded in a stalemate (condition 6) with no party being eager to make concessions. For Romania (condition 8), the results remain unchanged. Generally, stability maters for both candidates, as neither party could have aspired to favorable agreement terms when confronting unstable regimes at home. The overall view of the possible outcomes also draws the characteristic of this enlargement game. The only anticipation for gains (conditions 2 and 3) comes for playing 'power strong' when 'stable'. Apparently, 'issue strong' may not help when a country does not have the capability to influence decisions at the international level, which is immediately evident from condition 1 or from condition 5 when the candidate is expected to make a total compromise. 'Power strong' is conducive either to a mutually beneficially outcome (conditions 2 and 3) or to a mutually destructive one (conditions 6 and 7). Additionally, one may infer that the only choice for Romania would have been to frame the circumstances for compromise. Although it is entirely a different subject, a suggestion this study can make in this regard is to look for parallels with conditions yielding the same outcomes, that is condition 1, where countries played 'issue strong' but from a 'power weak' position. Former candidate countries like Hungary, Slovenia or the Czech Republic presumably fit that description.

D. Anticipation of objections 1. Objections on methodology The choice for game-theoretical investigation is defended on the ground of multi-layered interaction on the interests at stake in the agriculture dossier. Policy is formed in a two-stage procedure and reflects compromising decisions at the Community level among member countries. The general pattern of the EU decisionmaking process is further enriched by the activity of so-called oversight institutions, official advisory bodies, and various interest groups from both industry and civil society. Warleigh argues that the lack of legislative power does not impede such institutions, as for example the Economic and Social Committee (ESC) and the Committee of the Regions (CR), to play a highly influential role in the EU policy-making system. This suggests a bargaining framework, which seems more appropriate than a maximizing framework. Yet the latter alternative approach leads to comparable research problems. Field and Fulton use a model of a bargained price with a Nash solution that maximizes the product of the countries' net welfare levels. It is assumed that countries bargain over the level of a single choice variable, namely the internal price established under the CAP. The objective function of each country depends on two elements: the net utility obtained in the current round, and the expected net utility in the next bargaining round. In order to get a closer perspective of that approach, a simulation was constructed using available data for WTO negotiations in the field of agriculture between the EU and the United States. Appendix C shows a game whose payoffs are expressed in cardinal units, i.e. welfare gains, and contrasts these results with games characterized by ordered preferences. In general, the two methods lead to unique predictions: the parties do not find incentives to cooperate and prefer the noncooperative outcome. If one assumes a context of situational variables and the parties order their preferences, a different prediction may be considered: either 'cooperation' or 'noncooperation' appears as plausible equilibria. As the discussion suggests, the ongoing negotiations of the Doha Round match more

appropriately that strategic behavior in which the contextual detail would eventually shift the balance one way or another. As much reliability estimates of economic gains/losses may present, the maximizing framework does not capture the complex nature of issue power. Defining what constitutes a negotiating issue could be a risky process and this path may be indeed conducive to arbitrarily estimated forecasts as Baldwin warns (75). The case of agricultural negotiations shows however a clearly identified setting of negotiations, in which the aspects of issue area negotiations prove crucial for understanding strategic interactions. The consistent interpretation of games based on 'issue-bargaining power' model is thought to provide an insightful and enriched approach to the topic. What appears as rational in terms of estimates may not necessarily substantiate the bargaining process or, as the Appendix C exemplifies, may not even be comprehensive enough for the actual conclusion of negotiations. The application in this study finds that cost-benefit analyses have in fact played a negligible role in framing the negotiating context. There is not less true that the present game-theoretical exercise has not integrated questions that have the potential to further enrich the understanding. For one thing, this study assumes that information is common knowledge. The approach to 'enacted bargaining power' attempts to offer a realistic view on the way the parties reach and use information. Yet there might be reasonably hypothesized that an assessment of 'institutional stability' depends to a great extent on the existing distribution of information. The interests coalesce domestically according to the social and political strictures, which frame various representations of the negotiating context. It is only in a subsequent stage that a 'quality' index can be computed to shed light on aspects of governance. The problem appears manifest when contrasting available research as to alternative methods used to underscore the influence of domestic coalitions. For example, in the case of Germany, Patterson LA finds that the Democratic Union (CDU) and the Christian Social Union (CSU) enjoyed a strong relationship with the DBV, German Farmers' Union, whereas Field and Fulton

consider that the role the Free Democratic Party (FDP) played had been pivotal in winning coalitions for farm support. It is somehow ironically that the institutional indicators are more relevantly computed for large, aggregate groups, like 'countries', where a discussion on informational constraints should have been addressed in first place. In bargaining contexts between individuals or small groups the role played by information in coalition formation diminishes and so does the need for profuse investigation of 'stability'. An institutional index would produce less meaningful results when used to assess partners with relatively stable societies. According to Olson's theory on the collective action, the chances are greater that coalitions hamper the national interest. From this perspective, a descriptive analysis of domestic coalition formation as used by Patterson (Agricultural Policy) and Field and Fulton seems more appropriate. This study nevertheless emphasizes coalitional stability over coalitions' strength. There is also the question relative to the treatment of 'time', which requires particular attention. As an empirical matter, a characteristic feature of bargaining problems is that they are dynamic. They are resolved, if at all, through time, in sequences of offers and counteroffers or with one or both parties holding out in hope that the other will make concessions (Fearon). For negotiations similar to this application especially the issue of 'retaliation' seems to represent more realistically the sequence of games. Several papers include this third strategic option only to eventually find reasonably either to consider the games in simultaneous forms (Brams and Kilgour) or to reduce them to the usual 2x2 strategic structures (Aggarwal and Cameron). A possible explanation for these analytical solutions apparently does not point to concerns for simplified yet plausible solutions. The option for simultaneous games appears realistic for two reasons at least. First, the strategies of 'cooperation' and 'noncooperation' receive now generic, 'enriched' definition in contrast with the strongly opposite interpretations of 'accept' vs. 'decline'. The degree of 'concessions', which embody the strategic behavior gradually adapts to new contexts of concurrent decisions. The logic

of each situation engenders different strategic structures and hence renders ineffective a sequential treatment of games. Second, the analytical framework used for this study has the merit to incorporate sequential frames of bargaining. The transformational factors generate incremental feedback from enacted to potential power and thus allow for possible 'reaction' moves. The analysis of bargaining power in itself engenders a complex setting. How it comes to provide a solution to gametheoretical applications is probably the most stimulating part the model proposed here suggests. 2. Objections on analysis If any observation on the accuracy of the assessment of bargaining power is left aside, there is a fact that the solutions to the games emerged smoothly, without analytical hesitations. This apparent simplicity may cast doubts on the model's power to comprehend the complex reality of negotiations. There are several arguments to defend the analytical power of the model. First, the plausibility of solutions essentially rests on the methodology. An ample discussion on method precedes this section, but it is worth nevertheless mentioning here that diverse strands of thinking have been on purpose adapted and enlarged in this study in order to offer a clearer picture of strategic negotiations. The combination of 'bargaining power analysis' and 'game theory' is, for instance, one of the innovative proposals referred to mainly to uncover better the contextual detail. Second, the simple path to solutions has not to obscure the complementary observation about their correctness. The model's predictions closely follow the results of negotiations in every significant detail. Moreover, the overview tableau of possible solutions helps assess better the gains and losses from negotiations given the interplay of interests. Finally, a reasoned expectation is that the model is indeed able to offer hardly discernable solutions. To get a glimpse on that, appendix D offers solutions to a plausible variant of games where the only change is that the EU is presumed to play 'issue weak'. That scenario would have in fact been a strong working hypothesis if, as adjacently touched on in the text, the CEECS had formed a

coalition to oppose the EU common negotiating position. That choice is arguably deemed to have changed the alternatives available to the EU; its commitment had been considerably strengthened, making use of more resources to persuade the partners instead of primarily informing them. The simulation shows that Poland would have faced unchanged alternatives to end the game, but also presents the interesting case of 'cycling' whenever the EU has to face 'power weak' partners. A great deal of contextual analysis of bargaining power is required to understand a solution for this kind of games. Pareto optimal solutions are possible in each situation, so that the partners may envisage a negotiated solution. Would be that also realistic? And what sort of strategic moves would be required to influence the counter-party? It is especially in this kind of investigation that the refinement of the 'bargaining power' analysis becomes decisive to overcome the stalemate.

VII
Conclusions
he conventional way of thinking about integration has produced undoubtedly remarkable results, if only one has to bring into discussion the topic of increased efficiency in a larger economic space. Even if several contrasting empirical findings were to be left aside, there is however the amounting evidence about non-traditional gains from integration which would make the topic increasingly complex to be satisfactorily treated with the usual analytical tools. Here is where the game-theoretical perspective could offer convincing insights on the way countries look for and are capable to get the most advantageous outcomes from integration negotiations. The application to the agricultural dossier of the last EU enlargement seems particularly suited both to reveal the

effectiveness of game theory to deal with problems of strategic interactions and to provide reliable predictions as regards the negotiation solutions. As for the former argument, agricultural negotiations present a highly interactive setting, rich of contextual detail, which requires an appropriate method to reveal strategic behavior given the partners' constrained preferences. In contrast with most of the negotiation chapters, the agricultural dossier presents numerous areas of conflict from the amount of production quotas to time sequence of support and to defense of specific domestic rural activities. The stakes in these games are engendered from three significant levels of interaction dependence, independence, and interdependence from which originates as many determinants of decisions to cooperate or not to cooperate within a range of possible concessions. This study follows an already traditional path of research of applying the theory of games with constrained order of preferences. The model proposed here adapts the original contributions in two important ways. First, it puts emphasis on the 'institutional stability' as a controlling independent variable, and lets the other two 'issue bargaining power' and 'overall power' intertwine in determining the preferences. The procedure attempts to make more realistic the simplified nature of 2x2 games in situations that involve more than 2 players. By separating the issue of coalition stability as opposed to coalition strength, which the nperson games usually study this model recognizes both its decisive role in shaping nations' international behavior and the complexity of aggregating decisions at the national level. A second innovative part this study proposes is replacing the freewheeling approach to 'bargaining power' in issue area with an analytical framework that relates in a dynamic perspective potential power to enacted power. The expected result is to bring about more confidence in the evaluation of the influence the parties actually exert during negotiations. It is also this new approach, which makes possible a closer look to the 'rationality' of behavior during negotiations. It helps understand what low concessions really mean and to what extent 'disagreement' in fact means 'no concessions'. The normal

representations of games of strategy do not by construction allow for such refinements, which in real negotiations may represent the distance from success to failure. As for the reliability of predictions, the results prove satisfactorily consistent with the conduct and results of the negotiations. A behavioral pattern also appears manifest from the overall view of the strategic games. One of the main conclusions this pattern suggests is that negotiations with a powerful, PD-type partner necessitates for a stable partner at least a strong power position in order to reach both a mutually agreed and improved outcome. The relative strength of bargaining power in issue-area does not change the outcome. The result may be explained by the fact that a partner is highly motivated to keep a general strong power position intact and use its resources exclusively to that end. This rationale seems reasonable in integration negotiations where the membership objective is predominantly important for small countries. On the other hand, keeping low concession levels is sometimes the cost of transferring large amounts of committed resources to a general imposing position. Poland exemplifies the case by embracing compromises on agricultural dossier. This country enjoys a high agricultural profile that was not used in issue negotiations but in consolidating the general position. Romania, by contrast, has not been able to replicate that example in spite of quasi-similar general conditions regarding population employed in agriculture, importance of agricultural sectors, and rural traditions. Available and committed resources do not allow any possibility to constrain a mutually satisfactory result. The model also suggests that unstable coalitions are clearly dominated by PD-type partners. They reach either fixed no consensus equilibrium or give way reciprocally to non-cooperative behavior. The framework seems consistent because the cooperative approach is favored by a weak general power position, while a strong one invariably yields no consensus. It is beyond doubt than any advantage this model exhibits is to be strengthened or weakened by further research. The work here shows that its application is more appropriately suited to cases of

multiple-negotiable issues and largely interactive contexts involving 2 partners, which may or may not lead coalitions. There are several promising venues to provide more insightful results in analyzing strategic negotiations. Some stem from the inherently limited scope of this study. That is the case, for example, with the institutional indices which this research makes reference to. It is evident that any coalition of international partners cannot be appropriately described that way. Besides, there is also the problem of providing a coherent aggregate explanation for coalition behavior. Perhaps, the economic analysis has yet to make recourse to more intakes from the original research in cooperative games and transpose them in meaningful descriptions. Incidentally, it is noteworthy to mention that international strategic interactions among many players can be meaningfully reduced to only 2 parties. The usual solution consists in identifying two homogeneously conflicting domains of negotiations, which is why a negotiation context exists in the first place, and then proceeding to find characteristics of two relevant coalitions. That excludes by no means the possibility of three or more player interactions whose detection is a challenging task in itself. A second example of investigation, which would naturally continue this study, refers to the issue of multiple strategies. There are reasons to think that the actual pursue of negotiations involve more than two strategic options. An argument at hand is that a 'middle' approach to concluding a deal is presumably not so rare an occurrence. Finding the right path to formalize the order of preference in these 2x3 games is seemingly another provoking research objective. The researcher may be strongly persuaded to overcome this obstacle by making recourse to payoff function estimates. It is the purpose of Appendix D to show that this analytical perspective, even if not misleading when carefully constructed, is nonetheless less able to enrich the analysis or even to get closer to more accurate predictions. Finally, the issue of multiple levels of interactions enlarges further the research agenda. Although it seems convincing enough to limit the analysis to the three levels of dependence, independence, and interdependence it may also seems inciting to consider supplementary sources. For example, the independence

level could be separated in domestic and international institutional contexts; or, more readily, the domestic area conceivably comprises areas of interaction at individual (e.g. personalities), group (e.g. social classes), and institutional level (e.g. governmental and non-governmental organizations).

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Appendix A Table 4 Negotiating agenda of the EU-Poland game (1) Financial issues
Common Market Organizations Crops, oilseeds, protein crops Negotiating issues (i) Establishment of base area (ii) Establishment of reference yield (iii) Establishment of eligibility of land for direct payments (iv) Establishment of durum wheat area Establishment of production quota Establishment of National Guaranteed Quantities EU request 9,207,667 ha (9,217,667 ha) 2.96 t/ha December 31 2000 Fixed maximum areas 90,546 to 0 to (dehydrated + sun-dried) Poland request 9,248,000 ha (9,263,000 ha) 3.61 t/ha No request Results of negotiations 9,291,377 ha 3.00 t/ha

Potato Starch Dried fodder

260,000 to 160,000 to

144,985 to 13,538 to

Common Market Organizations Sugar

Negotiating issues (i) Fixing of sugar production quotas A+B (ii) Fixing of isoglucose quotas A+B

EU request 1,665,017 = 1,590,533 + 74,484 to 2,493 = 2,493 + 0.0 to 37,933 = Flue cured 22,000 Light air cured 12,633 Dark air cured 1,867 Fire cured 1,233 8.875.000 = 6.956.333 + 1.918.667 to

Poland request 1,866,000 = 1,650,000 + 216,000 to 20,000 = 15,000 + 5,000 to (42,000 = 40,000 + 2,200) 70,000 (55,000)

Results of negotiations 1,674,495 = 1,590,533 + 83,961 to 6,232 = 6,232 + 0 to 37,933

Tobacco

Establishment of production quota

Milk

Milk quota scheme T = D + Sales

11.217.000 t (11,845,000) in 2003 up to 13.740.000 t in 2008 = 10.506.000 t (11,183,000) in 2003 up to 13.176.000 t in

8,964,000 in 2003 up to 9,380,000 in 2008 = 8,500,000 in 2003 up to 8,916,000 in 2008 + 464,000 in

Common Market Organizations

Negotiating issues

EU request

Poland request 2008 + 711.000 t (662,000) in 2003 down to 564.000 t in 2008 Not quantified 2,021,000 1,017,000 2,200,000 1,500,000 720,000

Results of negotiations 2003 down to 464,000 in 2008

Beef

(i)

Additional payments

27,393,275 Adult: 2,034,309 Calves: 1,200,625 857,700 503,682 10% = 453,314 (325.581) 364,000 (335,880) 331.000

(ii) Slaughter premium (iii) Special beef premium (iv) Suckle cow premium Sheep meat (i) Ewe premium (ii) Additional payments, global amounts

1,815,430 839,518 926.000 young bulls 325,581 335,880

(2)

Non-financial issues
Negotiation result A 3-year transitional arrangement to set criteria for the preliminary recognition of producer organizations in the fruit and vegetables sector at 5 producers and a minimum value of marketable production of 100,000 Decision to classify Poland into a wine growing zone and obligation to register and classify the vine varieties was postponed until accession. Designations for alcoholic drinks (e.g. geographic, traditional) have been agreed for the requested varieties (Polish vodka, Polish Cherry, Herbal Vodka, Polish fruit wine, and Polish wine). A 5-year transitional arrangement to set the threshold for the recognition of a producer group in the tobacco sector at 1% of the guarantee threshold for all production regions in Poland. Distribution of quota between deliveries and direct sales will be reviewed on the basis of actual 2003 figures. A transitional arrangement of one year for the allocation of milk quota to individual producers and consequently be exempted from the payment of additional levies in the first quota year.

Poland position Recognition of producer organizations should be a minimum number of 5 members and a minimum value of marketable production provided by the members of 100,000. Solution to enable the present structure in respect of the raw materials for high wines production to be maintained in Poland after accession. Possibility of placing the inscription Polish wine/Polskie wino owocowe on the fruit wine labels to Polish wine producers, as well as for extending the list of spirit drinks subject to the protection in respect of their geographical origin and for protecting the trademark names of selected spirit drinks. Determination of the minimum raw tobacco production volume necessary to recognize the producers' group at a suitably low level which would facilitate group establishment. Introduction of a modified system of milk production quota administration over a period of a few years after accession. Possibility of initiating talks on the introduction of a modified system of milk production quota administration over a period of a few years after accession.

Poland position Adoption of suckle-cow premium system as it occurred in case of the last EU enlargement. The multi-purpose breed of cows to be recognized as suckle cow provided that a beef breed bull served them.

Negotiation result A 3 year transitional arrangement relating to which additional breeds are entitled to receive the suckle cow premium.

Source: Data collected from Costs and Benefits, Table 1, 109; and European Commission, Enlargement and Agriculture.

Table 5 Negotiating agenda of the EU-Romania game (1) Financial issues

Common Market Organizations Crops, oilseeds, protein crops Negotiating issues (i) Establishment of base area (ii) Establishment of reference yield (iii) Establishment of eligibility of land for direct payments (iv) Establishment of durum wheat area (i) Establishment of base area (ii) Area payment based on national average yield Establishment of production quota Establishment of National Guaranteed Quantities EU request 7,013,000 ha 2.650 to/ha Romania request 6,891,100 ha 3.087 to/ha. Results of negotiations 7.012.666 ha 2.650 to/ha

Rice Potato Starch Dried fodder

17,000 ha 4,000 to 500,000 to + 250,000 to

Common Market Organizations

Negotiating issues

EU request

Romania request otherwise dried and grounded (lucerne and clover) 500,000 to 0.0 to 8,876 to: 750 to long flax fibers + 8,126 to short flax and hemp fibers 400,000 to fresh tomatoes out of which 50,000 to of tomato processed products 5,000 to net weight for peaches in syrup and/or natural juice

Results of negotiations

Sugar Fibers

(i) Fixing of sugar production quotas (ii) Fixing of isoglucose quotas Aid for processing of straw and hemp grown for fiber

109,164 to

109.164 t 329.636 t 9.981 t

Processed Fruit and Vegetables

National and/or Community thresholds/guaranteed Community area for processing aid

Common Market Organizations

Negotiating issues

EU request

Romania request 1,000 to net weight for Williams and Rocha pears in syrup and/or natural juice 21,300 to 7,500,000 to for 2007.

Results of negotiations

Tobacco Milk

Establishment of production quota Milk quota scheme T = D + Sales

Beef

(i)Additional payments (ii) Slaughter premium

1,583,000 (adults: 1,498,000 calves: 85,000) 725,000 (1,550,000 for

(iii) Special beef premium

12,312 t 3,057,000 to = 1.093.000 to deliveries 1.964.000 to direct sales + 188.400 to restructuring reserve 858.260 1,233,000 (adults: 1,148,0000 calves: 85.000) 452.000

Common Market Organizations

Negotiating issues

EU request

Romania request 2007)

Results of negotiations 150,000 heads 5,880,620 heads 6.216.782 198 ha Rice: 100 to Others: 2,294 to 1,645 ha

(iv) Suckle-cow premium Sheep meat Honey Hops Seeds Nuts Support scheme for hops production Financial aid to seed producers (i) Ewe premium (ii) Additional payments, global amounts

150,000 heads for 2007. 8,900,000 1,449,000 beehives No position

(2) Non-financial issues

Romania position A transition period of 3 years for modernizing and revamping the slaughtering and meat processing units, milk processing units, as well as for the organizing the milk collecting and standardization centers in compliance with the Community requirements and for complying with the Community requirements regarding Negotiation result Transitional periods of 3 years for modernizing and upgrading 26 slaughtering and meat processing units, two poultry meat processing units, and 28 milkprocessing units to meet EU requirements, as well as for the organizing the milk collecting and standardization centers and for complying with EU rules on dairy farms

Romania position cow milk farms and quality of raw milk obtained. A transition period of 4 years for organizing the vineyards inventory and register. A transition period of 8 years for the removal of hybrid vineyards (Regulation 1493/99)

Appliance of the provisions relating to the conditions for the production, products characteristics and placing on the market of the traditional cheese brands Nasal, Bradet, Homorod, (smoked cheese, etc).

Negotiation result and the quality of raw milk obtained. Classification of Romanian wine areas in line with Romania's proposals. An eight-year transitional period for removing prohibited hybrid varieties of vine. Supplementary rights for planting vine varieties for quality wines produced in specified regions, corresponding to 1.5% of the total vineyard cultivated area. Right to add sucrose to enrich grape must so as to increase the alcoholic strength of wines. Recognition and protection of designation of origin and geographical designation for a number of spirit drinks made of plums and of wine distillate, types of milk, yogurt, buttermilk, cheese, salami, sausages, bread, pretzels, pie, and processed fruits. Derogation from veterinary norms for producing by traditional technologies 58 types of cheese and cow, sheep and buffalo dairy products. A transitional period of three years for the use of certain plant protection products containing active ingredients no longer used in the EU. Recognition and protection of the generic designation of

Negotiation result a spirit drink. Source: Data collected from European Commission, Enlargement and Agriculture; Romania Details Its Accession Terms; and Romania's Position Paper.

Romania position

Appendix B Table 6 Overall view on the possible outcomes when the EU plays PD
Conditions of play 1 Stable Issue strong Power weak 2 Stable Issue weak Power strong 3 Stable Issue strong Power strong 4 Stable Issue weak Power weak 3,3 4,1 Chicken 3,3 1,4 4,1 2,2 Prisoners' dilemma 3,3 4,1 Prisoners' dilemma 2,3 4,1 Leader 3,4 1,2 2,4 1,2 Leader 4,3 3,1 Stag hunt 1,4 2,2 1,4 2,2 Games and outcomes 2,3 4,1 3,4 1,2

Conditions of play 5 Unstable Issue strong Power weak 6 Unstable Issue weak Power strong 7 Unstable Issue strong Power strong 8 Unstable Issue weak Power weak

Games and outcomes 1,3 4,1 Hero 2,3 4,1 Deadlock 2,3 4,1 Deadlock 1,3 4,1 Hero 1,4 3,2 1,4 3,2 1,3 2,4 4,1 3,2 Deadlock analogue 1,3 2,4 4,1 3,2 Deadlock analogue 3,4 2,2 3,4 2,2

Appendix C 1 This material attempts to shed light on the methodological topic of payoff assessments. There are constructed strategic games of multilateral negotiations relative to agricultural trade liberalization, which is an ongoing issue on the WTO agenda. These games involve 2 players, the EU and the US, and 2 strategies, 'Agreement' and 'Disagreement' on one of four submitted proposals to reduce support to farmers and exporters, namely 'Status Quo (Uruguay Round Agreement)', 'Conservative scenario', 'Ambitious scenario', and 'Harbinson scenario'. The first part of simulation is to evaluate cardinal payoffs by using a political payoff function proposed by Abbott and Kallio. Their model assumes that governments set export subsidies to maximize political payoff in a manner corresponding to the agreement in place. The payoff each player's objective in the game - is a weighted sum of producer surplus, consumer surplus, and government budgetary expense, less agricultural support. Political payoff functions are given by the absolute gains relative to the base scenario ( Wi ):

Wi = p ,i S p ,i + c ,i S c ,i g ,i (Subi + Ai ), i = { ,2} 1
Where player 1 is the European Union (EU); player 2 is the United States of America (US); p , i , c , i , g , i are welfare weights which governments assign to groups of producers, consumers, and own expenses, respectively; S p , i , S c , i are producer surplus and
1

The author gratefully acknowledges the research assistance from Ms. Irina Ramniceanu, Assistant Lecturer with the School of International Economics and Business at the Academy of Economic Studies in Bucharest. Ms. Maria Patru, graduate student of the School of Informatics, Cibernetics at the Academy of Economic Studies Bucharest, also provided assistance in an earlier phase of research.

consumer surplus for player i, respectively; Subi , Ai are forms of government support, i.e. export subsidies and domestic direct aid, respectively. The weights coefficients are suggested by Abbott and Kallio as p ,1 = 1.30; c ,1 = 0.90; p , 2 = 1.15; c , 2 = 0.85; and

g ,i = 1 (the numeraire) for government budget expense. When

welfare weights equal one it is assumed that income redistribution is not a policy goal. The forms of government support to be considered are constrained by the available database. This simulation uses the levels of subsidies and domestic aid found in the UNCTAD database2. These amounts have to be modified during the game according with specific variations each scenario proposes. The strategic interactions among players give rise to differing payoffs depending upon opponents' strategies. The computations are made with the help of Agricultural Trade Policy Simulation Model ATPSM, static, deterministic, partialequilibrium model, which has been developed by UNCTAD in 1988 and applied since to multilateral trade negotiations. ATPSM estimates economic indicators like demand, supply, and trade flows for various commodities and countries, and then presents projects for the results of negotiations according to the assumptions made on countries' commercial policies. It makes thus possible to estimate Wi by incorporating in the payoff function the necessary data for consumer surplus, produces surplus, and agricultural support under the four scenarios. The results are presented below. Table 7 Estimations of payoffs with Agricultural Trade Policy Simulation Model (ATPSM)

W
Results of multilateral negotiations Status Quo (Uruguay Round Agreement)
2

W
+1.9

-2.8

Handbook on the UNCTAD Agricultural Trade Policy Simulation ModelATPSM. C++ Version 2.2. April 2003. <www.unctad.org/tab>

Conservative scenario -3.3 Ambitious scenario -5.0 Harbinson scenario -7.5 Results of EU unilateral negotiations, While the US sticks to status-quo Conservative scenario -3.5 Ambitious scenario -7.5 Harbinson scenario -7.2 Results of US unilateral negotiations, While the EU sticks to status-quo Conservative scenario -2.8 Ambitious scenario -2.4 Harbinson scenario -2.1 Explanatory note: Data are expressed in USD billions.

+2.4 +6.6 +2.8 +2.1 +3.8 +3.5 +2.1 +2.2 +1.5

If both players disagree on a given scenario, the interaction leads to the failure of negotiations and to the implementation of the current Uruguay Round provisions (Status Quo). Likewise, a negotiating partner's sole agreement means that it unilaterally liberalizes trade on the proposed scenario's terms, while the other party sticks to the currently agreed multilateral solution (Status Quo). That leaves three strategic games that corresponds to three scenarios proposed with a view to helping the negotiations during the Doha Round make progress. These games are represented in Figure 9 below. a) Conservative scenario
Player EU 1: Agreement Disagreement Player 2: US Agreement -3.3; +2.4 -2.8; +2.1 Player 2: US Agreement Player EU 1: Agreement Disagreement -5.0; +6.6 -2.4; +2.2 Disagreement -7.5; +3.8 -2.8; +1.9 Disagreement -3.5; +2.1 -2.8; +1.9

b) Ambitious scenario

c) Harbinson scenario
Player 2: US Player 1: EU Agreement Disagreement Agreement -7.5; +2.8 -2.1; +1.5 Disagreement -7.2; +3.5 -2.8; +1.9

Figure 9. Simulation of multilateral strategic negotiations in agricultural trade with cardinal payoffs

The simulations predict that the negotiations are blocked by disagreements either from both parties, or only from the EU side in all foreseeable scenarios. Equilibrium is stable as the parties choose their dominant strategies in all games they play. The results are a good representation of the actual negotiations: after deciding on an impressive schedule to finish the negotiations by the end of 2004, the parties find themselves deadlocked in pros and cons of liberalization measures and unable to reach a compromise. An interesting part of these games is that no party sees any feasible incentive to depart from the existing equilibrium without leaving the partner in a worse condition. In other words, there is no predictable chance that the multilateral negotiations are to conclude successful given the negotiating scenarios. Another point worth mentioning is that the payoff estimation takes into account significantly large discrepancies between the parameters relative to reductions of export subsidies and domestic aid, which range from complete elimination ('ambitious') to more or less moderate decreases of 45% and 55%, or 70% and 20%, respectively. Although acceptable in the terms of ATPSM, it would be economically meaningless, as this methodological stance persuasively implies, to search for those estimates of tariff reductions, welfare effects and so on which could make parties agree. It is the analysis of negotiations that should tell what the numbers are and not the other way round. The second part of simulation is meant to bring into discussion that kind of elements of negotiations' 'contextual detail'. For the purpose of the current topic, these could refer, for instance, to motivations to resume talks after a long impasse; to political

influences each party has to face at home; or to the balance of power among the negotiating actors. Using the original model of three-level interaction proposed by Aggarwal and Allan, it is estimated an order of preference relative to the four possible outcomes depending on how parties decide to mutually or unilaterally agree or disagree. Because both the EU and the US occupy dominant positions in the world trade with agricultural products, the overall power the interaction level of dependence - is evaluated to 'strong' for both players. Evaluations of the other two conditions of play 'issue bargaining power' and 'coalitional stability' corresponding to the interaction levels of interdependence and independence, respectively, are suggested by the proceeds of negotiations. The representation of games is given below. a) A PD Game
Player EU 1: Agreement Disagreement Player 2: US Agreement 3,3 4,1 Disagreement 1,4 2,2

b) A Deadlock Game
Player EU 1: Agreement Disagreement Player 2: US Agreement 2,2 4,1 Disagreement 1,4 3,3

c) A Stag Hunt Game

Player EU 1: Agreement Disagreement Player 2: US Agreement 4,4 3,1 Disagreement 1,3 2,2

Figure 10. Simulation of multilateral strategic negotiations in agricultural trade with ordinal payoffs

The variant (a) of the game is suggestive of the conditions of play at the start of negotiations. Both the EU and the US came to negotiations on strong footholds, committed to individually

reasoned yet conflicting proposals. Their representatives submitted for discussion opinions of almost exclusively domestic interest with only scant regard to other WTO members' objectives. The interaction leads to a PD game, in which the parties try to dominate the game and consequently choose the second-to-best outcome not to cooperate. Both the subsequent mediation within the WTO and the more assertive negotiation positions of the other parties however changed the character of the game. Several net-importing countries like Japan, Norway, Switzerland, and some African countries joined the EU in an effort to temper the liberalization zest and thus to keep the international price at low levels. On the other side, the US enjoyed the support from several developing countries, especially those assembled in the CAIRNS group, to push further on the reductions in agricultural support agreed at the Uruguay Round. The resulting game is one in which the two parties continue to play 'strong', both overall and in issue area, but nevertheless have to contemplate frail, accidentally formed coalitions coalesced around their exposed interests. The interaction is captioned by variant (b) of the game. This Deadlock game still does not make the players escape from the continued impasse, but, in contrast to a PD game, leaves them no alternative for a mutually improved outcome. The Doha Round with its ambitious schedule put much pressure on the negotiating parties to speed up the liberalization process. The parties were forced to make their proposals more coherent and credible. The coalitions became more stable, but another noteworthy side effect was that the two protagonists diminished visibly their stature during negotiations. The coalitional force played therein a role too, although the increasingly constrained agenda setting probably explains most of the turn of the event. The new conditions of interaction depict now in variant (c) a Stag Hunt game. The two players have to recognize the benefits of cooperation in order to reach a stable equilibrium of 'agreement' or otherwise prolong the impasse. This prediction provides a better description of the ongoing negotiations than the representation

based on payoff functions. Indeed, the parties succeeded in finding ways to a compromise, which materialized in a document, sketched during the Cancun ministerial meeting in September 2003. Although the compromise does not depart significantly from the initial positions, the result is remarkably significant from the point of view of this analysis. The prediction confidently emphasizes an equilibrium continuum between 'agreement' and 'disagreement', which in fact is a perfect match with the current state of affairs. There are still as many promising commitments to a negotiated conclusion as disbelievers and second thoughts continuously arise from both sides.

Appendix D Table 8 Overall view on the possible outcomes when the EU plays 'issue weak'
Conditions of play Stable Issue strong Power weak Stable Issue weak Power strong Stable Issue strong Power strong Stable Issue weak Power weak 3,4 4,1 3,4 4,1 2,3 1,2 1,3 2,2 3,4 4,1 2,4 4,1 1,3 2,2 3,3 1,2 Games and outcomes 2,4 4,1 4,4 3,1 3,3 1,2 1,3 2,2

Conditions of play Unstable Issue strong Power weak Unstable Issue weak Power strong Unstable Issue strong Power strong Unstable Issue weak Power weak 2,4 4,1 2,4 4,1 1,3 3,2 1,3 3,2

Games and outcomes 1,4 4,1 3,3 2,2 1,4 4,1 1,4 4,1 1,4 4,1 3,3 2,2 2,3 3,2 2,3 3,2

Index

A Acquis communautaire, 129 Agenda 2000, 76, 77, 78, 81, 88, 100, 133 B Banzhaf index, 58 Behavior, 30, 139, 144 C Central Eastern European Countries (CEECS), 16, 18, 19, 20, 21, 22, 40, 41, 54, 55, 67, 72, 74, 75, 76, 77, 78, 83, 85, 86, 92, 93, 97, 100, 101, 102, 103, 104, 105, 111, 124, 134, 143 Coalitions, 45, 130, 142 cooperative behavior, 67, 135 winning, 58 Commitment, 50, 99, 104, 107, 142 Common Agricultural Policy (CAP), 76, 78, 79, 80, 82, 83, 84, 85, 91, 95, 96, 99, 100, 102, 104, 107, 120, 133, 135 Common Market Organizations (CMOS), 99, 118 Common Customs Tariff, 104 Concessions, 82, 90, 96 Conflict, 129, 130, 137, 139, 140, 141, 142, 145 Constraints, 7, 42, 66, 129 D Development, 89, 104, 129, 132, 136, 137, 147 agriculture, 21 gap, 19, 28, 44

rural, 20, 77, 81, 85, 89, 104, 132, 137, 139 Direct payments, 82 Doha Round, 84, 121, 3, 6 E Enlargement(s), 1, 3, 55, 74, 77, 83, 85, 91, 101, 102, 130, 131, 132, 133, 134, 137, 138, 140, 143, 144, 145, 146, 5, 11 waves of, 18, 40, 57, 102 Europe Agreements (EAS), 18, 40, 75, 76 European Agricultural Guidance and Guarantee Fund (EAGGF), The, 80, 81, 118 European Commission (EC), 20, 21, 41, 55, 62, 78, 85, 101, 118, 135 European Council, 55, 74, 76, 78 European Parliament (EP), 55, 62 European Union (EU), 1, 3, 7, 8, 9, 10, 12, 16, 18, 19, 20, 21, 28, 29, 31, 40, 41, 42, 54-63, 67, 72-106, 106, 109120, 120, 124, 125, 130, 131, 134-146 budget, 20 F Financial Framework, 77, 83, 101, 102, 103, 104 Founding treaties, the, 55 G Game-theoretical approach See Theory Generalized System of Preferences (GSP), 75 Governance, 19, 46, 61, 63, 122

I Independence domestic politics, 36, 38, 142, 143 Integration Agreements (IAS) See Theory of economic integration Interaction See Strategy Interdependence, 1, 3, 139, 141, 146 issue-specific See Theory:contextual details of L Luxembourg Group, 78 M Market interventions, 81 Methodology See Theory N Negotiations, 31, 66, 84, 89, 90, 97, 117, 118, 129, 133, 134, 136, 140, 141, 143 accession, 15, 75, 77, 111, 112, 117, 118, 132, 133, 134, 135, 136, 137, 143, 144, 146, 11 bargaining power in negotiations, 7, 9, 16, 22, 37, 52, 66, 74, 79, 86, 92, 130, 135, 138, 140, 142 gap, 29 model, 22, 50 multilateral, 36, 37, 141 outcomes of, 22, 25, 70 strategic aspects of, 1, 3, 9, 37, 66, 130, 138, 140, 141 terms of, 28 P Poland, 7, 12, 18, 21, 22, 59, 60, 63, 73, 75, 78, 86-91, 98, 101, 104, 105, 106,

107, 110-119, 124, 126, 131, 132, 133, 134, 136, 139, 143, 146 Preference order, 9, 52, 68, 71 Preferential Trading Agreements (PTAS) See Theory of economic integration Production quotas, 72, 83, 98, 125 R Rivalry, 132, 140 Romania, 7, 12, 14, 16, 18, 20, 22, 59, 63, 73, 75, 78, 92-98, 101, 107-119, 126, 131, 133, 134, 140, 144 S Shapley-Shubik index, 58 Single European Market, 40 Strategy, 88, 131, 135, 139, 142, 145 2x2 games of, 22, 52 games of, 38, 42, 51, 124 T Theory game, 21, 23, 25, 26, 29, 30, 32 institutional economics, 24, 48 of economic integration, 21, 27, 29, 33 of international trade, 24 quantitative aspects, 41 scales of measurement, 68 Treaty of Nice, 57, 59, 143, 146, 147 U Uruguay Round, 76, 84, 85, 97, 138 V Voting power, 36, 59, 143