PUSH TO EXPAND EU RANKS SOWS SEEDS OF FARM FIGHT

PUSH TO EXPAND EU RANKS SOWS SEEDS OF FARM FIGHT

European Union governments used to dream of welcoming the former Soviet-bloc states of Central and Eastern Europe into their fold.

Now they are waking up to the nightmare of a multibillion-dollar explosion in spending on agriculture when union eventually happens.A summit of EU leaders in Madrid in December appears set to be overshadowed by bitter divisions between those who want the bloc to expand rapidly eastward and those who want to cushion their farmers against the shock of including the former centrally planned economies in the EU's farm policy.

Support for farmers under the controversial Common Agricultural Policy already absorbs over half of the entire 70 billion European Currency Unit ($90 billion) central budget each year through subsidized prices and direct payments.

The prospect of six - possibly nine - poor agricultural economies coming under the CAP umbrella by the end of the century has raised fears the policy's days might be numbered.

Traditional critics of the CAP - such as Britain, a net contributor to the EU budget - have seized on plans for enlargement eastward to demand a radical scaling down of the policy. Prime Minister John Major told fellow heads of government when they met in Spain last month that extending the CAP without cutting back on the level of support would cost at least 15 billion ECUs a year, an outlay his government is not prepared to sanction.

But CAP champions like France and Ireland who receive the lion's share of agricultural subsidies are prepared to veto any proposal that would see aid to their farmers trimmed in a new wave of reforms. If the choice is the survival of the CAP or enlargement, then the CAP must win, they argue.

Agriculture is such a key economic sector in Eastern Europe, however, that senior Brussels officials are now publicly warning: "Either we reform or we pay." That was the message delivered by EU External Affairs Commissioner Leon Brittan to a German audience recently.

The figures speak for themselves. Farming accounts for almost 8 percent of gross domestic product and employs a quarter of the East's work force. And the main agricultural products are those that currently receive the highest levels of support under the CAP: milk, meat and cereals.

If the nine countries now negotiating closer links with the EU - Poland, Hungary, the Czech and Slovak republics, Romania, Bulgaria, Latvia, Lithuania and Estonia - were all to join the bloc, the number of farmers would double, the area covered by the CAP would grow by 43 percent and the EU's cereal- growing land by 55 percent.

Admittedly output in the East has fallen since the breakup of the Soviet Union, thanks to a drop in consumer demand and the loss of former markets in

Comecon, the Soviet-led trade bloc. But the potential of these states to produce is enormous once economic recovery takes hold.

Price subsidization in the East at present EU levels, if it could be afforded, would create massive food surpluses. And the old Brussels trick of dumping unwanted food on world markets by paying export subsidies to traders would no longer be an option under the rules of the World Trade Organization.

EU farm commissioner Franz Fischler, who is due to publish a long-awaited strategy paper on enlargement later this month, is eager to reassure EU farmers.

"Accession will not mean a sudden change from one situation to another," he said. He is confident production levels in the East will remain static for several years.

Mr. Fischler is likely to recommend that applicant states receive grants to modernize their decrepit farms and buy new machinery, but be made to wait for up to 10 years after joining to take advantage of the generous prices available to EU farmers. A seven-year "transition period" was imposed on Spain and Portugal, for example, when they joined the EU in 1986.

But Mr. Fischler believes changes to the CAP are inevitable even without enlargement. There are internal budgetary pressures and a new round of world tariff cuts to be negotiated by the end of the decade.

In the long term, Brussels officials believe Eastern European farmers pose as much of a threat to world competitors as to their west European neighbors. A recent series of in-depth studies of the nine potential new members' economies indicate that grain and oilseeds will be the first to make substantial inroads on international markets followed by pork and poultry.