Cato Policy Analysis No. 489 September 18, 2003
http://www.cato.org/pubs/pas/pa-489es.html
EU Enlargement: Costs, Benefits, and Strategies for Central and Eastern European
Countries, by Marian L. Tupy
Marian L. Tupy is assistant director of the Project on Global Economic Liberty
at the Cato Institute.
Executive Summary
The accession of eight Central and Eastern European countries (CEECs) to the
European Union in 2004 will bring some important benefits. The new members will
gain from reduced barriers to trade and investment. By 2010, the movement of
labor will also be freed. But accession to the EU is neither a necessary nor a
sufficient condition for economic growth. The combined effects of market access
and economic liberalization, not EU membership, optimize economic growth.
Unfortunately, the incoming EU members had to choose between the common market
on the one hand and economic liberty on the other. Instead of concluding
free-trade agreements with the EU, the CEECs were cajoled into an increasingly
centralized superstate, in which most of their comparative advantages will be
legislated out of existence. As a result, economic growth in Central and Eastern
Europe (CEE) will continue to be suboptimal. The loss of potential future
economic growth will be only partly offset by the CEEC's access to the European
single market.
Following the collapse of communism, the CEECs searched for a quick way to
prosperity, and EU accession seemed like a rational step forward. Unfortunately,
the geopolitical aim of the European elites to rival the United States enjoys
clear precedence over the developmental needs of the CEECs.
Compliance with centralized EU regulations in three areasĀ-labor, agriculture,
and the environment -- will impose the most significant costs on the CEECs.
Western European labor regulations will make many workers in the less-productive
CEECs less competitive; agricultural subsidies will favor current EU members
over future ones; and stringent environmental regulations will impose a cost of
up to 120 billion euros on CEECs.
Accession members should be wary of future EU initiatives, such as harmonization
of taxes, which will further reduce their competitiveness. Once the CEECs join
the EU, they should pursue a strategy that seeks to introduce economic dynamism
to the region by forging an alliance with more economically liberal governments
to prevent further centralization in Brussels, working to prevent the adoption
of costly welfare entitlements in the new EU constitution, guarding the national
veto system within the EU, and working to abolish or substantially reform the
unfair Common Agricultural Policy. To the extent that the accession countries
can continue to unilaterally liberalize, their economic performance could
provide a useful example for other EU countries.
