EU enlargement: external economic implications

Abstract:

Unlike some previous EU enlargements, the present EU enlargement to central Europe has not prompted much, let alone a fierce debate about the external dimension. This paper discusses the main economic aspects of the external dimension, in particular whether there is a threat of trade diversion. Attention is paid to the three main topics of interest for third countries: industrial trade effects, impact on FDI and agricultural trade effects. Agriculture is arguably the most sensitive of the three, given the very high CAP border protection, and although large-scale trade diversion may eventually occur under certain scenarios (such as an unreformed CAP), these fears are greatly exaggerated in the short to medium-term (5-7 years) - the time frame considered is therefore all-important. This conclusion becomes less surprising if one takes a closer look at the current sorry state of agriculture in the central and eastern European countries. Separate sections of the paper deal with the somewhat sensitive subject of US - central and eastern European countries bilateral investment treaties, as well as the long-term development perspective, which addresses the prospects for catch-up growth by the accession countries. In the end, non-European stakeholders in the accession process will greatly benefit from sustained catch-up growth by the central and eastern European countries, which are locking-in deep reforms due to EU accession.

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