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    New EU Countries Expand Market Horizons


    © International Trade Centre, International Trade Forum - Issue 1/2004

    On 1 May 2004, ten countries will join the European Union (EU), creating the world's biggest single market. It will offer new opportunities even for those outside the EU.

    Europe's future dominated many of the discussions at the World Economic Forum's 2004 Annual Meeting in Davos, Switzerland. In March 2000, the European Council in Lisbon agreed on a strategy to make the EU the world's most dynamic and competitive economy in 2010. But in Davos hardly anyone seemed to think this goal would be achieved through "business as usual". Participants were asked to vote on whether they agreed with three statements on Europe's economic future. The results:

    • The EU is well on its way to reaching the Lisbon objective - 15.8%.
    • The EU will reach this objective only if major policy adjustments are adopted - 47.4%.
    • The EU will fail to reach this objective - 36.8%.
    The business, political and academic leaders were much more optimistic about the political impact of enlargement of the EU. Once again, they were given three options. Here is how the participants divided on the question of how enlargement will affect the EU's influence in global politics:
    • Strengthen its influence in global politics - 69.8%
    • Weaken its influence in global politics - 4.7%
    • Not have an effect - 25.6%
    One thing is certain: the enlargement of the EU to 25 member states will open new market horizons for companies wishing to do business or already conducting business with the EU. It will also increase the European population by 75 million, to 450 million. With a gross domestic product of around € 9.6 billion (approximately US$ 12 billion), the world's largest trading group will account for 19% of global trade.

    "One standard" will simplify trade

    The ten new members, often called acceding countries, will adhere to the "one standard for all" principle of the EU's single market with regard to technical regulations. This means exporters to these countries will no longer have to deal with different trade regimes and customs regulations. Instead, a single set of European Community-wide regulations will apply. For example, once a product enters any of the 25 EU countries, it is free to move around the Community without any customs or trade restrictions. Thus, Estonia or Cyprus is as good a jumping-off place for EU trade as Germany or Sweden. Firms that already have links in these new member states will immediately have new markets open to them.

    The wider single market will reduce compliance and administrative costs for exporters to the EU. They will also have a larger range of possibilities in terms of ports, warehouses and transhipment points. This will allow the exporters better to allocate their resources when doing business in the EU. Above all, it will result in lower costs.

    Lower tariffs for exporters

    The adoption by the new member states of the EU's external customs tariff will amount to an overall reduction in customs duties. The current average tariff in the EU, all products taken together, is about 4%. Today, the average tariff in the acceding countries is about 9%.

    For example, the ten acceding countries currently apply an average duty of 4.8% on industrial products, a figure that will diminish to 3.6% as they adopt the EU tariffs. Similarly, the average duties on imports of agricultural products will drop from 18.7% to 16.2%. In a very limited number of cases tariffs will increase, but World Trade Organization (WTO) rules will apply. This means exporting countries may lodge a complaint with the WTO.

    Fast-growing markets

    Although their income level is still well below the EU average, acceding countries have a strong economic potential signalled by fast-growing markets. Despite the recent global economic slowdown, they have sustained solid growth rates. With 4.2% of average growth in the years 1994 to 2000, they are amongst the world's most rapidly growing regions. During this period Poland alone (by far the biggest of the applicant countries) reached an average yearly growth of 5.4%.

    This economic growth is expected to continue, estimated at 4.5% annually for the next decade - roughly more than twice as high as expected in the 15 pre-2004 EU members. Per capita income will converge to the EU level over time. It is predicted to be the source of 46% of world outward foreign direct investment (FDI) and host to 24% of inward FDI. This, too, should result in a larger market for exporters as consumers reap the benefits of reintegration.

    Bridge between Asia and Europe

    In addition, the ten new members are viewed as a West-East-North-South bridge between Asia and Europe, connecting the most developed and the fastest-developing countries. This new pan-European corridor for transport is also expected to contribute to economic growth. Exporters and investors can also benefit from lower labour costs (€5 (US$ 6.2) per hour as compared to €17 (US$ 21.2) in the EU), upgraded infrastructures and a future huge network of transportation, all of which will cut costs and save in production.

    The EU is set to expand again in the next few years, further increasing the opportunities for strategic alliances between the "New North" and companies in the South. Negotiations are under way with Romania and Bulgaria and, while a date has not yet been set to open accession talks with Turkey, it is high on Europe's political agenda.

    Meet the new Europe

    Capital: Tallinn
    45,000 km2 - 1.4 million inhabitants

    Capital: Riga
    65,000 km2 - 2.4 million inhabitants

    Capital: Vilnius
    65,000 km2 - 3.5 million inhabitants

    Capital: Warsaw
    313,000 km2 - 38.6 million inhabitants

    Czech Republic
    Capital: Prague
    79,000 km2 - 10.2 million inhabitants

    Capital: Bratislava
    49,000 km2 - 5.4 million inhabitants

    Capital: Budapest
    93,000 km2 - 10.2 million inhabitants

    Capital: Ljubljana
    20,000 km2 - 2.0 million inhabitants

    Capital: Valletta
    315 km2 - 0.4 million inhabitants

    Capital: Nicosia
    9,000 km2 - 0.8 million inhabitants

    For more information, visit http://europa.eu.int/comm/enlargement/index_en.html

    Dianna Rienstra (dianna@csi.com) is a Brussels-based writer and consultant specializing in trade, development and corporate citizenship issues, as well as EU public affairs. Peter Hulm contributed to this article.