EU Integration and Expansion: Spain, Eastern Countries, and Beyond
Integration and Expansion Processes: Case Studies
Integration of Spain (1986)
What Was Expected?
On the eve of integration, the average tariff applied to imports from Spain to the EEC was almost three times that lay on Spanish products that complied with this market. It was envisaged that the dismantling of tariffs would encourage more growth in imports than for intra-EU exports made by Spain.
In addition, the Spanish tariff against imports from the rest of the world greatly exceeded the TEC. Therefore, it was expected that tariff changes arising from the accession process would result in a boost to imports from non-EU countries.
What Happened?
After joining the Community, there was continued high growth in imports. The rise in the share of imports and exports in GDP was due almost entirely to intra-EU trade. It is a clear manifestation that the trade creation effect derived from integration has been primarily domestic in nature.
But there has also been a slightly increased share of imports from third countries on GDP, indicating an effect of external trade creation. So apparently, there have been no trade diversions, except in specific areas of lesser significance in trade, such as agriculture.
Eastern Countries Enlargement (2004-2007): General Ideas
Enlargement processes have potential benefits and also challenges for the EU as a whole. Risk sharing is not homogeneous. The economic center of gravity (and political) tends to be enhanced by the enlargement process. Some of the effects of the entry of new countries dependent on political decisions are difficult to predict ex-ante (e.g., agricultural policy or cohesion). The latest (and upcoming) expansions are a drop in average EU income.
Impact of EU Enlargements: Commercial Features
- The New Member States (NMS) are countries with a high rate of trade liberalization in goods and services.
- Trade with the NMS is about 14% of extra EU-15 trade.
- In turn, the EU-15 is the destination of more than 65% of exports from the NMS.
- Germany is the outstanding customer/supplier (as expected).
- Spain’s position is behind in the European context as a customer and as a supplier of the NEM.
What Happened with the Expansion?
The application of international economic theory predicted the expansion of bilateral trade among member countries of the EU-15 and new partners. In fact, it already occurred before enlargement:
[Image/Graph of Trade in the EU-15 countries with Imports/Exports from 1995-2000]
Causes:
- Tariff disarmament (asymmetric in the beginning)
- Adoption of the acquis communautaire
- Other factors than accession
What Determines the Magnitude of Trade Adjustment in an Enlargement?
- The competitiveness gap with respect to the NEM:
- Prices (or costs)
- Quality
- Location strategies of multinational enterprises
- The degree of similarity in the composition of trade flows
a. The Differential Competitiveness of NEM: Labor cost advantages
b. Depends on the Location Strategies of Multinational Enterprises
- Trade flows and FDI are complementary.
- Multinationals have high PX and high PM (intra-firm trade).
- The inflow of foreign capital is amending the map of comparative advantage.
What’s Happening with the Location of Production?
c. The structure of comparative advantage of Spain and the NEM is increasingly similar.
The Next Enlargement
Countries in Accession Negotiations: Croatia and Turkey began in October 2005.
- Turkey is the most complex (and long) that the EU will meet in its history.
- Current situation: Non-Turkish blockade of the Ankara Agreement (Question of Cyprus)
Negotiations have not begun with the Former Yugoslav Republic of Macedonia. Recognized as a candidate in December 2005.