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The Impact of the EU Enlargement onto Emerging Markets : The Case of the Southeast European Countries

The political changes at the end of the 1980s set out the way for fundamental changes in the economics of the Central and Southeast European countries. In the process called transition practically all fields of their economies have been involved, but an economic relation to developed countries has been changed to a greater extent than in any other area. At the beginning of the 1990s many of these counties signed the European Agreements and soon after the agreement had been signed, negotiations began to accelerate the transition to free trade. On the other hand, the countries of the Southeast Europe stipulated the European agreement later and they do not have such good transition results. Although some of the Southeast European countries expressed their wish to join the EU at the same time as CEECs, unstable political situation and economic turmoil does not allow these countries to meet members’ criteria and their accession is postponed at least by one decade. On 1 May, the EU will have expanded to 25 members, with the addition of Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. This enlargement will have positive and negative effects on the Southeast European countries and this paper will only try to analyze the trade effect. Along with market liberalization, candidate countries as well as the Southeast European countries have raised the degree of their openness. This has resulted in a constant large trade deficit with the EU countries. Both groups of countries are suffering from a trade imbalance. This is compensated in the candidate countries by net service export and by considerable amount of foreign investment. At the same time, the amount of FDI in the Southeast countries is very low, and they compensate their trade deficit by revenue from tourism or net income of emigrants. The trade in industrial products between the EU and the CEECs as well as between the EU and the Southeast European countries is now essentially free of tariffs and non-tariff restrictions. At this moment, the EU is already the main trading partner of these countries and adjustments have taken place mostly via FDI flows and plant reallocations in the CEECs but not in the Southeast countries. After May 2004, candidate countries will adopt a common foreign trade policy in accordance with the EU requirements and their trade with other countries inside the EU will increase. After the EU enlargement, we should expect the creation of trade effect between the new candidate countries and the EU and, at the same time, the effect of trade diversion in case of the Southeast European countries. The EU enlargement should have a positive impact upon the Southeast economies, increasing FDI from the EU to these countries due to increasing labor cost in the candidate states after the association. In this paper, the consequences of the EU enlargement on the Southeast European countries will be estimated, especially on their trade relations, through using the case of Spanish and Portuguese economies as an example.

EU enlargement, trade agreements, trade, trade deficit, FDI

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