The Accession Treaty and consequences for new EU members

Abstract:

Now that the Accession Treaty is signed and the 'rules of the game' are set, the possible consequences of the EU accession for the prospective new members get into a new perspective. Various aspects (transfers, taxes, industry, agriculture and the services sector) of the impact of EU accession on the economy of the new EU Member States are addressed in this study.

Out of the 41 billion euro commitments for transfers to the new members in 2004-2006, not more than 5 to 10 billion euro net additional financial resources will be available. This latter figure represents the real cost of enlargement for the EU15. However, the very modest overall net financial gain (0.4% to 0.8% of the new members' GDP) should not be mixed up with the impact of transfers. Transfers from the Structural and Cohesion Funds will be concentrated in certain segments of the economy (transport, other infrastructure, environment, education and training, etc.) and their impact, provided the absorption capacity is there, may be quite large. At the same time, contributions to the EU budget and co-financing of EU projects will create serious fiscal tensions.

The impact of changes in taxation is controversial. Revenues from VAT will increase. The same applies to excise taxes on cigarettes and alcohol. Customs duties will be channelled to Brussels, a painful loss to the central budget. Pre-accession tax allowances for foreign investors have already ceased. Possible negative effects will be compensated by decreasing risk and new opportunities to participate in EU co-financed projects.

Some accession countries have been highly successful in productivity catching-up in several medium- and high-tech industries and reported considerable market share gains in the EU. A closer look at the winner and loser industries (in terms of market shares) suggests that manufacturing in the core EU countries may face challenges after enlargement. Most central and east European countries do not compete with the EU cohesion countries (Greece, Portugal and Spain), but rather with Austria, France, Germany, Italy and Ireland.

Central and east European agriculture will face serious difficulties after accession. Strict EU rules will force many small family farms to leave the market. Large farms will have to cope with rising costs. Modernisation will become crucial, but the lack of funds will be a constraint. In the new members' trade in processed food products with the EU15, the trade balance may worsen initially, but will probably improve in the longer run due to foreign direct investment.

The accession countries have successfully departed from their industry-dominated economic structure. Their GDP structure already resembles that of the developed market economies with a high share of the services sector. However, traditional service activities such as trade, transport and telecommunications dominate while segments with higher value added, especially business services, are lagging behind. The latter offer new opportunities for trade and investments.