Prof - UNECE
Draft
Elżbieta Kawecka-Wyrzykowska, *)
Dariusz K. Rosati, **)
The impact of accession of central European candidate countries to the European Union on Russia, Ukraine and Belarus.
Trade and investment effects
Paper prepared for the United Nations Economic Commission for Europe
*) Dr E. Kawecka-Wyrzykowska is professor at Warsaw School of Economics, and Head, European Integration Division in the Foreign Trade Research Institute in Warsaw;
**) Dr Dariusz K. Rosati is professor at Warsaw School of Economics, and member of Monetary Policy Council of the National Bank of Poland
Warsaw, November 2002
Contents
Introduction 2
1. Theoretical approach to the effects of integration 4
2. EU trade regime with third countries 8
2.1. EU regulations of trade with CIS-3. Partnership and Cooperation Agreements (PCAs) 6
2.2. EU common external customs tariff to be adopted by CE-4 10
2.2.1. The level of the EU import tariffs 10
2.2.2. The Generalized System of Preferences (GSP) 111
3. Possible changes in the level of tariff on CE-4's imports from CIS-3 after accession to the EU 12
3.1. Present level of customs tariffs protection in CE-4 12
3.2. Practical problems involved in comparison of tariff levels in CE-4 and the EU 14
3.3. Possible effects of the adoption of the EU GSP scheme on imports from CIS-3 15
4. Possible changes in CE-4's import from CIS-3 after accession to the EU 16
4.1. Previous adjustments resulting from the Europe Agreements 16
4.2. Methodology and data 16
4.3. Methodological approach to quantitative estimates 19
4.4. Estimation results for non-agricultural imports 20
4.5. Expected changes in agricultural imports 22
4.6. Changes in textile trade flows 23
5. Possible impact of other trade measures 24
5.1. Anti-dumping measures 24
5.2. Other safeguard measures 25
5.3. Export subsidies in agricultural exports from the EU 26
5.4. Technical Standards 27
5.4.1. EU rules 27
5.4.2. Effects of adoption of the EU standardization system in CE-4 29
5.4.3. Other EU requirements 31
5.5. Export duties and taxes 31
6. The impact CE-4's accession to the EU on inflows of foreign direct investment to CIS-3 32
6.1. Theoretical underpinnings 32
6.2. FDI inflows to CIS-3: some statistical observations 35
6.3. Impact of CIS-3 of increased FDI inflows to CE-4 after EU accession 38
7. Other implications of EU membership for relations with CIS-3 38
8. Conclusions 40
References 42
Annex I 44
Annex II 64
Introduction
The accession of central European countries (CE) into the EU will affect economic links between these countries and the third countries, as well as between the enlarged EU and the third countries in a variety of ways. Among the third countries, European CIS countries – Russian Federation, Ukraine and Belarus (CIS-3) – are likely to be particularly affected, for several reasons. First, elimination of remaining trade barriers and extension of the EU-wide customs union into CEE will further encourage trade and investment flows between CEE and the EU, probably with some inevitable reorientation away from traditional partners in the former Soviet Union. Second, the full adoption of the acquis communautaire by CEE will inevitably imply changes in some of the existing rules and practices concerning trade and investment flows between CIS, the EU and CEE as new Member States of the EU.
The main purpose of this study is to evaluate the economic effects of CEE’s accession to the EU on CIS-3. The analysis focuses on two main areas. First, effects of the adoption of the EU trade rules, including the common external tariff, by CEE on trade between CEE and CIS-3 are examined. Second, an attempt is made to evaluate the impact of EU accession on flows of foreign direct investment into CIS-3. For reasons of data limitations the analysis is restricted to four central European countries - the Czech Republic, Hungary, Poland and Slovakia, or CE-4. All four countries have traditionally had strong economic links with CIS-3 8they account for more than 60% of exports from CIS-3 to central and eastern Europe) and that all are likely to be included in the first group of new EU members.
The rest of the paper is organized in eight sections. The analysis starts with a short presentation of the theoretical approach to the effects of integration. This approach is used later to analyze some of the possible implications of EU enlargement on CIS trade with CE-4. In the second section, EU trade regime with respect to third countries is briefly discussed, including special arrangements with respect to CIS countries and main characteristics of the EU common external tariff to be adopted by CE-4 after accession. The third section compares the current level of tariff protection in CE-4 with the common external tariff of the EU for imports from CIS-3, by individual CE-4 countries and main products identified by CN code at six-digit level. Section four provides some estimates of the trade creation and trade diversion effect on the basis of statistical data from the previous section. In section five, the possible impact of other trade measures is discussed, including implications of CE-4’s adjustments to the EU technical standards. The possible impact on foreign direct investment flows into CIS after CE-4’s accession is examined in the sixth section. Other possible implications of EU accessions for trade with CIS-3 are briefly discussed in section seven. Section eight concludes.
The main finding of the study is that immediate trade and investment effects of CE-4’s accession to the EU are likely to be very small, almost negligible. Possible negative implications of the extension of the EU common external tariff on certain individual imports from CIS-3 to CE-4 can be expected to be more than offset by gains in many other imports, chiefly because of reduced tariff protection and the extension of GSP schemes on imports to CE-4. In the longer run, dynamic benefits from integration are likely to translate also into more trade with CIS-3.
The analysis, though formally restricted to CIS-3, is essentially applicable to all members of CIS because of the similar status they have acquired in EU trade policy. More detailed information, however, is presented only with regard to three main partners of this grouping, i.e. Russia, Ukraine and Belarus. The limitation, while reflecting also limited availability of statistical data for other CIS countries, is primarily justified by the fact that Russia, Ukraine and Belarus largely dominate in trade with CE-4. CIS-3 accounted for 97% of total CE-4 imports of all CIS countries in 2000 (Russia itself accounted for almost 85%).
Most of the analysis is based on trade and investment data, as well as the customs tariff data from 2001.
1. Theoretical approach to the effects of integration
The impact of accession of new member states into the European Union on third countries can be assessed with standard instruments that are applied in the analysis of effects of economic integration. In most general terms, these effects are typically divided into static effects and dynamic effects. Among static effects, the two concepts most widely used in the context of trade liberalization are the trade creation and trade diversion effects.[1] Usually these concepts are applied to analyze ex ante the effects of the customs union formation, i.e. complete abolition of trade barriers among the partners, accompanied by the implementation of common customs tariff with regard to imports from countries not belonging to the customs union (the so called third countries). The trade creation and trade diversion concepts can also be applied to assess effects of partial liberalization, i.e. a reduction (not complete elimination) of trade barriers.[2] They focus on expected implications for levels and structure of trade flows of the elimination of trade barriers. Other static effects of trade liberalization include the increase of consumption in result of lower import prices, improvement of terms of trade vis-a-vis third countries, and reduction of transaction costs due to elimination of customs borders inside the customs union.
The dynamic effects of integration are considered far more important than the static effects. They include the positive effect of enlarged market size on investment, competitiveness and growth, economies of scale and effects of other common policies, like regional policies. Unfortunately, the dynamic effects are also far more difficult to estimate than simple static effects (Balassa, 1975; Kreinin, 1975; Baldwin, Francois, Portes, 1996; others).
As the focus of the present study is on the impact of EU enlargement on third countries, obviously not all the static and dynamic effects are relevant for the analysis, but only those that have a bearing on third countries. Thus, the effects for the new members need to be examined only to the extent they induce changes in output and trade in CIS-3. As a result, the scope of analysis is restricted to the impact of replacing the national trade policy regimes in new member countries by a common trade policy of the EU, including the imposition of the common external tariff. In addition, the possible impact of enlargement on foreign direct investment flows into CIS-3 will also be examined.
In a classical customs union approach, the trade creation effect represents the additional imports from the preferred source as a result of a lowering of the import price (due to elimination of a customs duty). This effect occurs when some domestic production in a country liberalizing its imports is replaced by lower-cost imports from another member of the union. Assuming that all economic resources are fully employed before and after formation of the customs union, this shift increases the welfare of all countries concerned because it leads to more specialization in production based on comparative advantage.[3]
The trade diversion effect represents the increase in imports from the preferred source at the expense of the non-preferred foreign suppliers following the abolition of the customs duty on imports originating in the preferred country of supply (in the customs union). The abolition of duty causes lowering of the prices of the preferred source in the market of the preference-giving country (member of the customs union), inducing a switch in import procurement from the non-preferred country to the preferred country. In other words, trade diversion occurs when lower cost imports from outside the customs union are replaced by higher cost imports from a union member. This results because of the preferential trade treatment given to customs union member countries. Trade diversion, by itself, reduces welfare because it shifts production from more efficient producers outside the customs union to less efficient production inside the union. Thus, trade diversion worsens the international allocation of resources and shifts production structure away from the structure based on comparative advantage.
As the customs union can result in both trade creation and trade diversion, it can therefore increase or reduce the welfare of union members, depending on the relative strength of these two opposing forces. The final result depends on a number of factors. A customs union is more likely to lead to trade creation and increased welfare under the following conditions (Salvatore, 1990, pp.293-294; El-Agraa, 1990, p.94):
The higher are the pre-union trade barriers of member countries. There is then a greater probability that formation of the customs union will create more trade among union members rather than divert trade from nonmembers,
- The greater is the number of countries forming the customs union and the larger their size. Under these circumstances there is a greater probability that low-cost producers fall within the union.
- The more competitive rather than complementary are the economies of member countries. There are then greater opportunities for specialization in production and trade creation with the formation of the customs union. Thus, a customs union is more likely to increase welfare if formed by two competitive industrial countries rather than by an industrial nation and an agricultural (complementary) country.
- The closer geographically are the members of the customs union. Then transportation costs represent less of an obstacle to trade creation among members.
- The greater is the pre-union trade and economic relationship among potential members of the customs union. This leads to greater opportunities for significant welfare gains as a result of the formation of the customs union.
Static effects (first of all the creation and diversion effects[4]) are important, but of crucial relevance are the dynamic effects. The dynamic effects relate to the numerous means by which economic integration may speed up the rate of growth of GDP of the participating nations. These means include the following:
- Economies of scale which are made possible by the increased size of the market for firms and industries operating below optimum capacity before integration occurs;[5]
- Economies external to the firm and industry which may have a downward influence on both specific and general cost structures;
- Increased competition that results from the elimination of border barriers inside the customs union. In the absence of a customs union, producers (especially those in monopolistic and oligopolistic markets) are likely to grow sluggish and complacent behind trade barriers. Formation of a customs union, i.e. abolition of protection against products coming from other members of the customs union, means that producers have to become more efficient to meet the competition of other producers within the union. If they are not efficient enough, they will have to go out of business. The increased level of competition is also likely to stimulate the development and utilization of new technologies. All these efforts will cut costs of production;
- Incentives to invest that appear on the bigger market. The formation of a customs union is likely to spur domestic and external investors to undertake production within the customs union and to take advantage of the enlarged market. One additional incentive for the outsiders to set up within the union will be to avoid the (discriminatory) trade barriers imposed on non-union products.
The dynamic effects are estimated to be about five to six times larger than the static gains (Salvatore, 1990, p.925). Dynamic effects are, however, extremely difficult to be calculated.
The concepts of static and dynamic effects may be applied to calculate the trade implications for CIS-3 of CE-4’s adjustments to the EU common customs tariff and EU trade preferences. In cases where there will be a decrease of rates of duties on imports from CIS-3, an increase of imports can be expected, while in cases where there will be tariff increases, the opposite is likely to take place.
Moving now from general analysis to analysis by specific commodity categories the likely effects will differ for agricultural and non-agricultural trade.
As regards non-agricultural products the free trade area has been already established between CE-4 and the EU, meaning 0% duties on EU products. Thus, the implications for imports from CIS will be the result mostly of adjustments of CE-4’s MFN tariffs to a/ the EU common customs tariff and b/ to the EU GSP system. The adoption of the EU common tariff will result exclusively in trade creation (a positive effect for CIS imports as long as the EU common external tariff – or CET – is lower than national tariffs, and negative effect if the opposite is true). No trade diversion will take place, as imports from the EU are already duty-free in CE-4.
The inclusion of CIS into the GSP system will entail improved access of CIS to CE-4 markets and will thus result in trade diversion – to the benefit of imports from CIS. CE-4 importers may divert from products coming from countries subject to MFN treatment to products coming from CIS subject to lower GSP tariffs.
As regards agricultural imports from CIS-3 – apart from the changes resulting from a/ adoption of EU MFN tariffs and b/ adoption of GSP scheme - there will also be c/ effects of elimination of duties and other restrictions on agricultural products coming from the EU as these products are now protected against imports (no free trade area between EU and CE-4 exists in this area). Elimination of duties on EU products will divert imports from non-preferred (MFN) sources to the EU suppliers as their products will become cheaper than products from MFN sources. This will act against supplies from CIS. Similarly, increases of external tariffs (MFN rates) on some agricultural products will act in the same direction because some duties are at present lower in CE-4 than in the EU (e.g. on cereals).
It should be remembered that tariff changes (affecting prices) are not the only factor influencing customer’s decisions. The other factors are: transport costs (especially important in case of fresh products, and in this respect Ukrainian, Belarussian and some Russian products may have some advantage), quality of products, meeting sanitary and veterinary requirements etc.
Another way of calculating liberalization effects might be ex post analysis. The main problem with such approach is, however, to isolate the effects of integration (liberalization) from the effects of developments which take place in parallel, e.g. changes of output and demand, changes in prices, fluctuations of exchange rates etc. In the case of CIS it is also a question of much more complex process of transformation from a command to a market economy. Econometric models attempt to address such issues but their results can only be considered as more or less close approximations, as they typically are based on a number of rather tenuous assumptions.
2. EU trade regime with respect to third countries
2.1. EU regulations of trade with CIS-3: Partnership and Co-operation Agreements (PCAs)
The present trade and economic relations between the EU and most CIS countries are governed by the bilateral Partnership and Co-operation Agreements (PCAs). All these agreements are similar in terms of their structure and contents. The first such agreements were concluded with Ukraine, the Russian Federation and Moldova in 1994 (see Table I of the Annex II). They replaced the Agreement on Trade and Economic Co-operation concluded in 1989 with the Soviet Union.
The PCAs provide for the parties to grant each other “most favored nation” treatment (MFN) and national treatment, subject to exceptions for regional trade agreements and preferences to developing countries. A party may not apply quantitative restrictions on imports from the other party, although special provisions are made for separate agreements on “sensitive” products (textiles and clothing, and iron and steel products). The other provisions are the following:
a/ CIS partners agreed to use rules of WTO in relations and trade with the EU;
b/ any protective measure of the market may be introduced only after prior consultations and only after 30 days after the consultations;
c/ there are provisions for establishment of foreign enterprises on the respective territories;
d/ there are no restrictions for foreign direct investments;
e/ rules of competition and protection of property and intellectual rights have been introduced;
f/ economic cooperation for mutual acknowledgement of standards should develop;
g/ the EU has confirmed financial assistance through TACIS.[6]
Apart from issues of trade and economic cooperation, which have been of high importance for partners, the PCAs regulate also some other areas of cooperation. They provide for:
a/ a political dialogue, i.e. summits at a presidential level at least twice a year (between the Russian President and the President of the Commission),
b/ Cooperation Council at a ministerial level, to meet at least once a year,
c/ Cooperation Committee at an expert level with joint consultations,
d/ Parliamentary Committee which assures dialogue between the respective CIS parliaments and the European Parliament.
The time-frame of these agreements is 10 years, then they should be renegotiated. The term “transitional economy” was chosen rather than “market economy” or “state-planned economy” to describe the status of CIS. The terms of changing this status were described in the agreements. Such change would allow for elimination of still existing discriminatory elements in trade (e.g. anti-dumping procedures) and create better conditions for trade.
PCAs are not association agreements and the question of a possible entry in future of any CIS into the EU was never a part of the agreement. Neither are PCAs preferential agreements, i.e. they do not provide for reduction of customs duties. They provide however, for the so-called evolutionary[7] clause, which offers the possibility of further negotiations on free trade areas.[8] Moreover, they have created greater predictability in mutual relations between the partners.
Provisions of PCAs will apply to trade with CE-4 as they are part of the EU external trade policy and have to be adopted by new members as part of the acquis communautaire (of course, unless the agreements are not changed or substituted for other rules, like e.g. for WTO rules by the time of CE-4’s accession to the EU). They will refer mainly to exports from CE-4 to CIS-3 (imports from CIS to CE-4 will be regulated by EU rules – see below). Their practical importance will be however meaningless because the provisions of these agreements are – as already mentioned – non-preferential and will not change the present, non-preferential status of products exported by CE-4 on CIS markets.[9]
2.2. EU common customs tariff to be adopted by CE-4
2.2.1. The level of the EU import tariffs
At present, customs duties in the EU are not high. The simple average tariff for non-agricultural products (excluding petroleum) amounted in 2001 to 4.1%[10]. However, tariffs on sensitive products such as textiles and clothing are higher.
Agricultural product lines have generally higher levels of tariffs than non-agricultural product lines. In 2001 the simple average tariff on agricultural products was estimated at 16.7%, although tariff quotas provided better access on high-tariff items.[11]
The simple average applied rate of duty on all products in 2001 was estimated at 6.7% (see Table 1 and Table II in Annex II).
Tariff peaks (triple the simple average or more) are now for meat, dairy products, cereals, and for textiles and clothing. One third of dutiable lines are low tariffs (up to 3%), meaning a low protective effect. The range of applied tariffs, in terms of the minimum and maximum rates, is also more important on agricultural products (from 0% to 236.4%) than on non-agricultural products (from 0 to 26%).[12]
Since the EU maintains numerous preferential trade agreements and arrangements with many groups of countries, exclusively MFN treatment applies only to imports from several countries: Australia, Canada, Hong Kong, Japan, the Republic of Korea, New Zealand, Singapore, Chinese Taipei, and the United States. Although the number of countries subject to MFN is so small, the share of those partners in external EU trade is significant: in 2000 they accounted for 38% of total EU external imports.
Apart from the countries subject to MFN treatment, other trading partners are eligible for various preferential regimes.
The most beneficial treatment is granted to least developed countries and ACP countries (95% of lines are duty free), followed by regional trade agreements (80%), GSP beneficiaries (54%), and countries subject only to MFN (20%).[13]
The EU tariff has two columns for the duty: one for the “conventional” rate of duty, applied to imports from all countries (whether or not a member of the WTO), unless the autonomous rate is lower; and one for the “autonomous” rate of duty, applied to imports from all origins, if this rate is lower than the conventional rate.
2.2.2. The Generalized System of Preferences - GSP
Since 1 July 1971 the European Communities have been applying the GSP on many products imported from developing countries. GSP tariffs are lower than MFN tariffs in order to facilitate imports from beneficiaries and in this way to support their exports and economic development. At the beginning of 1993, after the collapse of the Soviet Union, the EU included the newly independent states into the GSP scheme with the aim to support the process of their economic transformation.
The product coverage of the present GSP scheme[14] includes mostly non-agricultural products and a limited number of agricultural articles. The GSP preference for a given product – as a percentage by which MFN duty rates are reduced – is basically the same for all countries. This percentage depends on a given product’s “sensitivity”, which is determined by the situation of the sector manufacturing the same product in the Community. According to its degree of sensitivity, each product is classified as belonging to one of four groups. Each of those groups enjoys a different preferential margin – this is what is known as “tariff modulation”.
The four categories include:
a) “very sensitive products” (many agricultural products, textiles and textile articles, iron and steel), for which the preferential tariff is 85% of the normal Common Customs Tariff (CCT) rate which is equivalent to MFN tariff;
b) “sensitive products” (many other agricultural products, chemicals, plastics and rubber products, leather goods, footwear, wood and wood products, paper, glass, copper, appliances, and motor vehicles), for which the preferential tariff is 70% of the CCT rate;
c) “semi-sensitive products”, for which the preferential tariff is 35% of the CCT;
d) finally, no duty applies to “non-sensitive products” (horses for slaughter, some chemicals).[15]
As some developing countries have attained a level of competitiveness that allows them increase their exports without enjoying GSP privileges, the EU’s GSP system provides for a so-called “graduation mechanism” under which the benefit of the scheme is phased out for specific sectors of countries.[16] Graduation from GSP benefits applies to country-product category combinations, plus any country whose share of a certain product in the EU’s imports exceeds 25%.
GSP beneficiaries may apply to obtain the Community’s special incentive arrangements for countries demonstrating adherence to certain internationally recognized core labour standards or to certain standards set by the International Tropical Timber Organization. The country must provide details of its domestic legislation and the measures taken to apply and monitor the provisions effectively, which the Commission investigates to the extent possible, including in the country itself. According to the Commission, two applications have been received for the special incentive arrangement on core labor standards, from Moldova and the Russian Federation, with the former granted the special incentive in April 2000.
In the case of CIS, two large products groups have been completely excluded from GSP, i.e. fishery products and products covered by the European Coal and Steel Community Treaty (ECSC products). Moreover, some products important for individual CIS are also not covered by GSP.
With the passage of time the significance of the GSP has eroded because of the reduction of tariff levels in the world (the recent important reduction resulted from the Uruguay Round Agreements). Moreover, under the specific commodity pattern of Russia and some other CIS partners exports, the GSP has been much less important. These exports are dominated by energy products and raw materials (petroleum oils and natural gas, i.e. products that face very low MFN tariffs (usually at 0%) in the EU. In this case preferences are simply not needed.
In other words, given a relatively limited share of CIS exports realized under GSP treatment, the erosion of preferential margins has been of a relatively minor importance to these countries.
3. Possible changes in the level of tariffs on CE-4’s imports from CIS-3 after accession to the EU
3.1. Present level of customs tariff protection in CE-4 and EU
After the dissolution of the Soviet Union CE-4 concluded bilateral agreements with most of the successor states of the Soviet Union. These agreements provide for MFN status in mutual relations between CE-4 and individual CIS partners. In few cases where some CIS countries are not covered by bilateral agreements (Tajikistan and Turkmenistan), they nevertheless enjoy MFN status in CE-4 on the basis of unilateral decisions by CE-4 governments.
These agreements continue to provide contractual bases for mutual trade relations with most CIS partners and allow both sides to benefit from mutually granted MFN treatment. In the late 1990s several CIS countries became WTO members.[17] Since then MFN treatment with those countries has been based on WTO rules.
MFN tariffs in CE-4 on imports from CIS countries differ as they are set by the national authorities. In many instances these tariffs are higher than tariffs in the EU, and in some instances they are lower. The arithmetic average level of tariffs on MFN imports, classified into agricultural and non-agricultural products, is given in Table 1.
Table1: Level of nominal tariff protection in CE-4 and EU (tariff rates in %)
|Coverage |Czech Republic |Hungary (1998) |Poland (2000) |Slovakia (2001) |EU |
| |(2001) | | | |(2001) |
|Simple average MFN tariff, all products |6.1 |14.3 |15.9 |6.1 |6.7 |
|- agricultural products |12.0 |37.1 |32.8 |11.8 |16.7 |
|- non-agricultural products |4.5 |8.2 |10.9 |4.4 |4.1 |
Source: Trade Policy Review. Hungary 1998; Trade Policy Review. Poland 2000; Trade Policy Review. The Czech Republic 2001; Trade Policy Review. Slovakia 2001, (WTO, Geneva).
As can be seen, the overall level of nominal MFN protection in EU is much lower than in Hungary and Poland, but somewhat higher than in the Czech Republic and Slovakia. If GSP rates are taken into account, the actual average level of protection in EU is even lower. Tariff protection for agricultural goods is generally much higher than for non-agricultural goods. Of course, simple arithmetic averages do not give a very precise picture of the real level of protection against imports, such as CIS-3, but data on weighted averages with respect to imports from particular countries and regions are not available.
The level of present customs duties imposed on imports from the CIS will change after the adoption by CE-4 of the EU tariffs. The changes will be a combined effect of two types of adjustments:
1/ adoption of the EU common customs tariff (MFN level); this adjustment will result in the increase or decrease of tariffs in CE-4, depending on the product,
2/ adoption of the EU GSP scheme (margin of preferences is calculated on the basis of MFN rates) which includes – apart from developing countries – also CIS partners; in majority cases this adjustment will result in the decrease of the present tariffs in Poland. [18]
The data shown in Table 1 allow for some preliminary observations. The figures suggest that a shift to the common external tariff after accession to the EU should have a strongly positive effect on imports to Hungary and Poland, as the level of tariff protection in these two countries should fall significantly. As to the imports to the Czech Republic and Slovakia, the expected effect will be a combination of the slight increase of nominal tariffs to the EU levels, and of the decrease of tariffs due to GSP application. It is difficult to assess a priori the size and the sign of the final effect. On balance, the positive effect should largely outweigh the negative effect. This tentative hypothesis will be examined below in more detail.
3.2. Practical problems involved in comparison of tariff levels in CE-4 and the EU[19]
A number of practical problems are involved in any comparative analysis of tariffs in CE-4 and in the EU. The first problem is related to different ways of setting tariffs. Some 10% of lines are established on a non-ad valorem basis, and mainly concern agricultural products. Non-ad valorem rates are either specific (assessed on a volume basis), combinations of an ad valorem component with a specific component (compound rate), or mixed lines, on which the duty is subject to a minimum rate (MIN) and/or maximum rate (MAX), or lines on which the rate is set by a technical formula.[20] Estimating the tariff on such products poses difficulties due to the need to convert the duties to ad valorem equivalents. Every method of calculation of such equivalents is however subject to bias, because it is not obvious what unit values should be used for such calculations.
An additional source of bias in the estimation of the tariff on agricultural products arises from the nature of the duty regime itself. For example, an entry price system applies to the duty regime for imports of fresh fruit and vegetables that are also produced in the Community, such as tomatoes, cucumbers, oranges, and lemons. A band of entry prices is established for each period of importation during the year, climbing in the peak European harvesting period. For each particular price band, the tariff consists of an ad valorem component and a specific component, the latter set so as to ensure that the importer always has an incentive to set this price at or above the price at the lower end of the band.[21]
Moreover, there are preferential tariff quotas, which mostly concern agricultural and fishery products. It is not practically possible to calculate the ”average” rate covering imports in the framework of preferential tariffs and the out-of-quota tariffs.[22]
3.3. Possible effects of the adoption by CE-4 of the EU GSP scheme on imports from CIS-3.
CE-4 apply GSP for developing countries but these priviledges do not cover CIS countries. Thus, adoption of this system will certainly improve access to CE-4 markets for CIS goods. The scope of this improvement will depend on a number of factors, including the commodity pattern of imports from CIS, sensitivity of those imports in terms of the their eligibility for preferences; share of imports which will benefit mostly from GSP, etc.
On the basis of the present pattern of imports from CIS one may say that most of imports from Russia (in terms of the value of imports) will not benefit from GSP. The reason is that two biggest items in imports, i.e. crude petroleum oils and natural gas, which account for about 85% of total imports, already now face duty-free access to CE-4 markets. The remaining 15% of imports from Russia is divided between very different items, of much smaller shares. Some of them will be eligible for GSP, some – not.
With regard to Ukraine, some 50% of total imports are already imported on duty-free basis (most mineral products). Out of the remaining half of imports, 40% are industrial products and many of them will benefit from GSP.
Most agricultural imports will be excluded from GSP. This observation is true with regard to agricultural imports from Russia, Ukraine and Belarus as they are obviously dominated by products of temperate climate. Most such products are directly competitive to EU products and excluded from GSP or treated as very sensitive products (with very low margin of preferences).
GSP will have greater importance for products coming from Belarus. Most of imports consist of industrial products (78% of total imports from this country) and are eligible for GSP.
4. Possible changes in the level of tariff protection in CE-4 and in imports from CIS-3 as a result of CE-4’s accession to the European Union
4.1. Previous adjustments resulting from the Europe Agreements
While analyzing the effects of CE-4’s integration into the EU on foreign trade it is necessary to remember that important adjustments of CIS imports to CE-4’s accession in the EU have already taken place as a result of the Europe Agreements.
In CE-4, the commercial part of this Agreement entered into force on March 1, 1992 and provided for gradual liberalization of CE-4’s imports from the EU. Since that time tariffs on industrial products originating in the EU have been completely eliminated and tariffs on some agricultural products have been reduced. This process has increased competition on CE-4 markets for all non-EU suppliers, including suppliers from CIS countries. EU products have become cheaper for CE-4 consumers and some diversion from CIS countries (and other non-EU partners) took place. In the case of some products the competition pressure was tough as the difference between the MFN tariff (imposed on CIS products) and the liberalized tariff (imposed on EU products) was high. This was the case of industrial imports, which were completely liberalized.
On the other hand, one element mitigating negative implications of liberalization of of EU imports on the domestic market was the fact that tariff reductions were implemented over several years and were not one-off decision (following the so-called “asymmetry principle”).
Anyway, the main conclusion is that most adjustments of foreign supplies to liberalization of CE-4’s industrial trade with the EU have already taken place. This conclusion applies to most foreign partners as all of them had to adjust on CE-4 markets to much cheaper industrial products coming from the EU, CEFTA, EFTA and some other countries which negotiated free trade agreements with CE-4. Their joint share amounted to between 75-85% of total industrial imports of CE-4 in the end of the 90s.
It is difficult to assess in quantitative terms the impact of regional and multilateral liberalization on import flows from the CIS. In general terms we may say that due to deep and broad liberalization of non-agricultural imports from main partners (EU, CEFTA, EFTA and some other countries), the remaining partners had to adjust their exports to new access conditions to CE-4 market. This conclusion means that adjustments to membership implications will be much easier for suppliers of industrial products than of agricultural articles.
4.2. Methodology and data
The scope of changes in imports of CE-4 from CIS-3 after EU enlargement will largely depend on the changes in the levels of import protection in CE-4 before and after their accession to the EU. The actual level of MFN tariffs in CE-4 differs from country to country. In the Czech Republic and Slovakia (the two countries form now a customs union and have a common external tariff) the level of MFN tariffs is generally low and not much different from the tariff level in the EU. By contrast, in Poland and especially in Hungary the level of protection is generally much higher and is likely to come down significantly after accession. In addition to the changes in tariffs resulting from the adoption of the common external tariff, the future level of protection will be affected also by changes caused by the replacement of individual GSP schemes now in existence in CE-4 by the EU-wide GSP scheme.
In what follows, the scope of expected changes in CE-4’s imports levels resulting from the adoption by CE-4 of the common external tariff of the EU is examined. The analysis is carried out in three steps. First, ten most important groups of imported products with highest import value are identified for each CE-4 and CIS-3, for each of the three broad categories of products – agricultural products, mineral products and industrial products - corresponding to Combined Nomenclature (CN) classification chapters 1-24, 25-27, and 28-97, respectively. The individual products groups are identified at CN 6-digit level (8-digit for Poland). The statistical data are obtained from national statistical services and cover trade flows registered in 2001 (2000 for Poland). In the second step MFN and GSP duty rates for individual products groups are determined, both for individual CE-4 and for the EU. In the final step, the impact on import volumes of the adoption of EU tariffs is estimated. The estimation starts with direct calculations of the trade creation effect for each of the specified products groups, and the obtained results are next extrapolated for total imports.
Detailed data on imports of individual product groups from CIS-3 to CE-4 divided intro three broad product categories, with respective tariff rates, are presented in Annex I. The entire data base includes 36 tables (3 exporting countries, 4 importing countries and 3 broad product categories), showing import values, percentage shares of individual product groups in total imports (grand total and total for each broad category), and import duty rates for CE-4 and for EU. Tables 2 and 3 shown below present the summary figures.
Table 2 shows the aggregate import values for the Czech Republic, Hungary, Poland and Slovakia, by broad product categories and by country of origin (the Russian Federation, Ukraine and Belarus). Two observations can be made immediately. First, imports from Russia dwarfs imports from other two countries – the share of Russia in total imports from CIS-3 varies between 86% in Hungary to 91% in Slovakia. Imports from Ukraine amounts to around 10%, and imports from Belarus accounts for only a tiny fraction of all imports (between 1.5 and 3.6%).
Table 2: Aggregate import values from CIS-3 to CE-4, in’000 USD
|Description |CN chapters |Imports from Russian|Imports from Ukraine|Imports from Belarus|Imports from CIS-3, |
| | |Federation | | |total |
|Czech Republic (2001) | | | | | |
|Total imports |CN(1-97) |2 000 007 |256 904 |35 348 |2 292 259 |
|Imports of agricultural products |CN(1-24) |2 492 |2 553 |499 |5 544 |
|Imports of mineral products |CN(25-27) |1 658 704 |163 803 |216 |1 822 723 |
|Imports of industrial products |CN(28-97) |338 811 |90 548 |34 633 |463 992 |
|Hungary (2001) | | | | | |
|Total imports |(CN 1-97) |2 369 515 |295 215 |100 105 |2 764 835 |
|Imports of agricultural products |(CN 1-24) |5 036 |11 346 |821 |17 203 |
|Imports of mineral products |(CN 25-27) |2 018 740 |61 042 |64 673 |2 144 455 |
|Imports of industrial products |(CN 28-97) |345 539 |222 827 |34 611 |602 977 |
|Poland (2000) | | | | | |
|Total imports |CN 01-97 |4 619 448 |475 374 |153 682 |5 248 504 |
|Imports of agricultural products |CN 01-24 |61 626 |21 722 |7 608 |90 956 |
|Imports of mineral products |CN 25-27 |4 114 342 |261 414 |26 356 |4 402 112 |
|Imports of industrial products |CN 28-97 |443 480 |192 238 |119 718 |755 436 |
|Slovakia (2001) | | | | | |
|Total imports |CN 01-97 |2 180 611 |194 142 |26 843 |2 401 596 |
|Imports of agricultural products |CN 01-24 |621 |9 608 |1 |10 230 |
|Imports of mineral products |CN 25-27 |1 929 268 |88 921 |4 936 |2 023 125 |
|Imports of industrial products |CN 28-97 |250 722 |95 613 |21 906 |368 241 |
Source: Compiled from data provided national statistical services
Table 3: Shares of ten largest imported product groups in total imports of the respective broad category products from CIS-3 to CE-4, in %.
|Importing country |Broad product category |Share in imports from |Share in imports from |Share in imports from |
| |(CN chapters) |Russian Federation |Ukraine |Belarus |
|Czech Republic |CN 1-24 |88.73 |87.70 |100.00 |
| |CN 25-27 |99.97 |98.89 |100.00 |
| |CN 28-97 |63.41 |60.33 |70.04 |
|Hungary |CN 1-24 |99.20 |97.81 |99.87 |
| |CN 25-27 |99.89 |97.54 |100.00 |
| |CN 28-97 |68.20 |74.12 |85.15 |
|Poland |CN 1-24 |94.21 |84.11 |96.70 |
| |CN 25-27 |98.46 |96.10 |93.73 |
| |CN 28-97 |49.32 |42.68 |66.33 |
|Slovakia |CN 1-24 |94.52 |98.97 |100.00 |
| |CN 25-27 |100.00 |98.60 |100.00 |
| |CN 28-97 |71.47 |64.62 |87.26 |
Source: Calculated from data presented in Annex I.
Second, imports from Russia are dominated by minerals, mostly gas and oil. Mineral products (CN chapters 25-27) account for between 83% (Czech Republic) and 89% (Poland) of all imports. Industrial products, by contrast, account for the largest chunk of imports from Belarus and Ukraine, while agricultural products play only a marginal role. This very concentrated commodity structure of imports suggests that possible gains from adopting a common EU tariff may be limited because the largest imports – mineral products – enters CE-4 markets in most cases at zero rates.
Table 3 shows the share of top ten individual product groups with largest import value in total imports of particular product category, for each exporting and each importing country. The selected samples including top ten import groups are indeed very complete for agricultural and mineral products – they cover between 84% and 100% of all imports in those categories. For industrial imports, the sample generally accounts for between 60% and 87% of total industrial imports; only in Poland this percentage is lower (42-66% of imports), mostly because the analysis for Poland is made at a more disaggregated level (CN 8-digit). The large coverage allows for the results obtained for the samples to be extrapolated to all imports in respective broad categories.
4.3. Methodological approach to quantitative estimates
It is important to distinguish between agricultural imports and non-agricultural imports. For the first category imports, trade between CE-4 and EU has not yet been fully liberalized and many tariff and non-tariff barriers on imports from the EU still exist. In this case the EU accession will entail both the trade creation and the trade diversion effects that will be working in favor of imports from EU and against non-EU imports, including imports from CIS. But these effects are likely to be small both in relative and in absolute terms because agricultural imports account for less than 1% of total CE-4’ imports from CIS-3[23].
As to the second category of imports, trade between CE-4 and EU has been already fully liberalized and therefore no further trade diversion away from non-EU imports can be expected. By contrast, some trade creation – positive or negative - will most probably take place in case of non-agricultural imports because of the replacement of CE-4’s national tariffs by the EU common external tariff. But even in this case the expected trade effects are likely to be rather limited, mostly because vast majority of non-agricultural imports from CIS-3 already enter CE-4 markets duty free (mostly mineral products such as oil and gas).
By contrast, non-agricultural imports are likely to be affected more significantly, as tariffs in CE-4 will in most cases be reduced on imports from CIS-3. Here the standard trade creation effect can be calculated according to the following formula:[24]
t1 - to
(1) (M = Mo ( ( ( ----------
1 + to
where:
Mo - value of CE-4’s imports from CIS-3 in a basic period,
( - price elasticity of CE-4’s import demand, ( < 0
to - rate of duty in CE-4 before the adoption of the EU common customs tariff,
t1 - rate of duty after the adoption by CE-4 of the EU common customs tariff.
In the short term, the trade effect of the adoption of the EU common external tariff may not be very significant, given the current commodity pattern of imports from CIS, i.e. dominating role of raw materials (mainly gas and oil) where import duties in CE-4 already now amount to 0%. But in longer term these effects are likely to increase further. Some CIC exporters do not sell to CE-4 anymore – or sell only small quantities - because high tariffs in CE-4 (especially in Hungary and Poland) make such transactions not profitable. In these cases reductions of CE-4’s external tariffs (adoption of the EU MFN tariffs) will make exports to CE-4 more competitive. This may be especially the case with regard to the products facing at present high tariffs in CE-4 and those representing sufficient quality.
4.4. Estimation results for non-agricultural imports
As a second step, the expected changes in imports of top ten groups of products with highest import value within each of the three broad categories have been calculated, for each importing country and each exporting country. Throughout the calculations, the price elasticity of import demand has been assumed to be 1.5. The summary results are shown in Table 4. Next, the percentage shares of the totals of ten largest imports (as reported in Table 3) have been used to extrapolate the expected changes in total imports from CIS-3. These final results are shown in Table 5.
The estimated overall trade creation effect for non-agricultural imports – as presented in Table 5 – is on balance negative, but very small – indeed almost negligible - both in absolute terms and in relation to total imports. The adoption of the EU common external tariff and – in the case of certain goods – also the extension of GSP to imports from CIS-3, is likely to reduce flows of non-agricultural imports into CE-4 from CIS-3 by about USD 3 million, which is combined outcome of an increase of mineral imports by 18 million and a reduction in industrial imports by about 21 million. These trade changes represent 0.17% and –0.92% of total imports of the respective categories. The trade creation effect is positive for non-agricultural imports from Ukraine (USD 15 millions) and from Belarus (USD 6 million). By contrast, the trade effect is negative for imports from Russia (USD 24 million). Looking at individual CE-4, the overall positive effect is expected only for imports to Poland (USD 44 million) [25], while in other CE-4 the overall effect is likely to be negative, varying between a loss of USD10-12 million for the Czech Republic and Slovakia, and USD 23 million for Hungary.
Table 4. Possible changes of ten largest groups of non-agricultural products imported from CIS-3 to CE-4 as a result of the adoption of the EU common customs tariff (in million USD, 2001 prices)
|Importing country, |CN chapter |Change in imports |Change in mports |Change in imports |Change in total |
|Product category | |from Russia |from Ukraine |from Belarus |imports from CIS-3 |
|Czech Republic | | | | | |
|- Mineral products |CN 25-27 |0.09 |1.99 |0.00 |2.08 |
|- Industrial products |CN 28-97 |-8.72 |0.23 |0.80 |-7.69 |
|Hungary | | | | | |
|- Mineral products |CN 25-27 |-0.39 |0.22 |2.24 |2.07 |
|- Industrial products |CN 28-97 |-12.88 |-4.94 |0.00 |-17.82 |
|Poland | | | | | |
|- Mineral products |CN 25-27 |10.69 |0.99 |1.91 |13.59 |
|- Industrial products |CN 28-97 |4.84 |7.97 |1.19 |14.00 |
|Slovakia | | | | | |
|- Mineral products |CN 25-27 |0.09 |-0.26 |0.38 |0.21 |
|- Industrial products |CN 28-97 |-8.09 |-1.41 |0.71 |-9.44 |
Source: Own calculations
Table 5: Estimated possible changes in total non-agricultural imports from CIS-3 to CE-4 as a result of the adoption of the EU common customs tariff (in million USD, 2001 prices)
|Importing country, |CN chapter |Change in |Change in |Change in |Change in total |Change in total |
|Product category | |imports from |imports from |imports from |imports from CIS-3|imports from CIS-3 |
| | |Russia |Ukraine |Belarus | |(% of total |
| | | | | | |imports) |
|Czech Republic | | | | | | |
|- Mineral products |CN 25-27 |0.09 |2.01 |0.00 |2.10 |0.12 |
|- Industrial products |CN 28-97 |-13.75 |0.38 |1.14 |-12.23 |-2.64 |
|Hungary | | | | | | |
|- Mineral products |CN 25-27 |-0.39 |0.22 |2.23 |2.06 |0.10 |
|- Industrial products |CN 28-97 |-18.89 |-6.66 |0.00 |-25.55 |-4.24 |
|Poland | | | | | | |
|- Mineral products |CN 25-27 |10.86 |1.03 |2.04 |13.93 |0.32 |
|- Industrial products |CN 28-97 |9.81 |18.67 |1.79 |30.27 |4.01 |
|Slovakia | | | | | | |
|- Mineral products |CN 25-27 |0.09 |-0.26 |0.38 |0.21 |0.01 |
|- Industrial products |CN 28-97 |-11.32 |-2.18 |0.81 |-12.69 |-3.45 |
|CE-4, total | | | | | | |
|- Mineral products |CN 25-27 |10.65 |4.86 |2.42 |17.96 |0.17 |
|- Industrial products |CN 28-97 |-34.15 |10.21 |3.74 |-20.20 |-0.92 |
Source: Own calculations
The results obtained may be surprising both with respect to the sign of the expected changes (negative rather than positive) and to their size (very insignificant). After all, the CE countries with relatively high tariffs - Poland, Hungary - should be expected to increase their imports from CIS-3 rather considerably, while in the other two countries – the Czech Republic, Slovakia – the trade effects should be close to zero, given the small difference between their tariffs and the EU tariff (after accounting for GSP rates). There are several explanations for this apparent paradox. First, as noted earlier, imports of mineral products that account for 80-90% of all imports from CIS-3 are already duty free in CE-4, and therefore there will be no trade creation effect at all for large majority of imports. Second, for other remaining imports duty rates in CE-4 are relatively low, partly as a result of reductions obtained under subsequent GATT/WTO rounds multilateral trade negotiations. For low nominal tariff levels also the magnitude of the tariff-induced changes in trade flows is rather limited. Third, among industrial products imported from CIS-3 by far the most important is aluminum and aluminum products that together account for almost one quarter of all industrial imports. These products now enter CE-4 markets duty free (except for Poland) but in EU they are charged with 6% duty rate, so that a negative trade creation effect can be expected after accession. Actually, if aluminum and aluminum products are excluded from calculations, the trade creation effect for industrial imports turns from negative of USD 20.2 million into positive of USD 14.4 million (0.66% of total industrial imports).
It should be noted that the obtained results show only one component of the static effects of tariff changes[26]. The reduction of the overall tariff protection after the accession, especially in Poland and Hungary, will most probably allow many new imports from CIS-3 to emerge and expand.
4.5. Expected changes in agricultural imports
Trade creation and trade diversion should occur in the field of agricultural trade. Trade diversion away from CIS-3-originating imports is very likely because removing trade barriers in CE-4 after accession will lead to substitution of at least some agricultural imports from CIS by duty-free imports from EU. Moreover, tariffs on some goods will go up in CE-4 after accession to the EU (e.g. cereals and tobacco and tobacco products are higher protected in the EU than in CE-4, except for Hungary), entailing a negative trade creation effect for imports from CIS-3. These increased tariffs will protect CE-4 markets against imports from all third countries (non-EU members). At the same time, imports from the EU (and other new members of the EU) will become much cheaper in CE-4 due to the complete elimination of the present tariffs.
It is probably impossible to calculate those effects precisely (not only in trade with CIS but with any other partners), given the numerous methodological problems (see point 3.2). The level of tariff and non-tariff protection is likely to increase for imports such as fish and fish products, fresh fruits and vegetables, processed cheese. On the other hand, a reduction of protection is expected for imports such as bread, pastry and cakes, ice cream, fresh cheese, animal feed and preserved vegetables. But the proportions will vary from one importing country to another. One very preliminary method to estimate the scope of expected changes in agricultural imports is to compare the simple average nominal tariffs as reported in Table 1 and to apply them in calculating the trade creation effect. If the tariff-equivalent level of agricultural protection in the EU is 16.7%, the adoption of this level will certainly lead to expansion of imports from CIS-3 to countries such as Hungary and Poland, where the current nominal level of protection is 37.1% and 32.8%, respectively. By contrast, imports to the Czech Republic and Slovakia can be expected to decline because the current level of protection is 12% and 11.8%, respectively. Applying formula (1) to all agricultural imports gives the overall positive trade creation effect of USD 12.89 million, or 2.33% of total agricultural imports from CIS-3.
As regards the trade diversion effect, establishing a free trade area between CE-4 and the EU would in theory lead to replacement of some imports from CIS-3 by import from EU. However, this will not necessarily be the case. At present, agricultural imports from EU to CE-4 are artificially competitive because of massive export subsidies paid under CAP. After the accession, agricultural prices in EU and CE-4 will equalize and export subsidies will be discontinued. This may actually lead to a reduction, rather than increase, of agricultural imports from the EU. Therefore, the final outcome of EU accession for agricultural imports from CIS-3 may well be positive.
4.6. Changes in textile trade flows
In 1993 the Community negotiated a number of new bilateral agreements on textiles and clothing with CIS which replaced previous autonomous unilateral measures. Some of these new agreements provided for quantitative restrictions (Russia, Belarus, Ukraine and Uzbekistan) while others provided only for double-checking surveillance without any quantitative restrictions (Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Turkmenistan).[27] In the next years some of these agreements were renegotiated. In 1998 quotas were eliminated on imports from Russia, in next years – from other CIS partners.
At present, the EU maintains quotas on imports of textile and clothing products only from Belarus under the bilateral agreement. Surveillance of imports of textile and clothing products applies under agreements with Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.[28] Moreover, there are quantitative restrictions on imports of goods resulting from economic outward processing traffic (OPT) arrangements. In 1999, the EU allocated the bulk of OPT quotas to Belarus and Ukraine.
Under the Uruguay Round Agreement on Textiles and Clothing all WTO Members have committed themselves to integrate these two sectors of trade into the general rules of WTO system. The process has been in force since 1995 and will end at the beginning of 2005 with elimination of all quotas imposed on trade in textiles and clothing. This rule applies to all partners.
Thus, the implications of CE-4’s accession to the EU on CIS exports of textiles and clothing to CE-4 will depend on the date of CE-4’s accession to the EU. If CE-4 join the EU before 2005, the EU restrictions on textile imports will be probably extended to CE-4 (until the beginning of 2005). As the most likely date for CE-4’s accession to the EU seems to be 2004, such restrictions would be maintained for one year, at the very most.
5. Possible impact of other measures
5.1. Anti-dumping measures
Until 1998 the EC had applied different rules for setting normal value in Anti-Dumping (AD) proceedings against import from market economy and non-market economy countries. In the last case the normal value of imported products was compared with prices or costs of production of a like product in a third market economy country. Under the rules for non-market economies it was slightly easier to implement AD than under the general rules for market economy countries applied to WTO members. In 1998 this legislation was amended to grant exporters from Russia (and China) “market economy treatment” (under several conditions) on an ad hoc basis for the purpose of anti-dumping investigations.[29] In this way the Community expressed its appreciation of the reform process in Russia and China. In practice, however, only few Russian companies have managed to meet criteria listed in the relevant Regulation in order to be eligible for market economy anti-dumping rules.[30] In 2000 the Community extended the new rules to Ukraine and Kazakhstan as well as Kyrgyzstan and Georgia – two countries which were to become WTO members soon.[31] Other CIS partners are still treated as non-market economies for the purpose of calculation the normal value in anti-dumping investigations.
The number of anti-dumping proceedings against products originating in Russia is significant: in 1992-1999 there were 22 proceedings (see Table III in Annex II). The Russian side estimates the losses du to AD restrictions at USD 2.24 billions. The temporary self-restraints undertaken by Russian exporters on some steel products (pipes and transformer steel) prevented additional anti-dumping proceedings.
Out of the total of 192 anti-dumping measures in force in the EU at the end 1999, Russia accounted for 7%. The most affected categories were iron and steel products, and chemicals.
CE-4 have used anti-dumping provisions much less than the EU. For example, there were only two anti-dumping proceedings in Poland against CIS goods in the end of 2000. Both of them concerned products imported from Belarus: synthetic fibers and polyester tow. AD measures have not been widely used in transition countries in general, partly because their relatively high level of competitiveness in products that are typically affected by AD measures, such as steel products, textiles, footwear, or chemicals, and partly because of weakness of national trade administration.
This will certainly change after EU enlargement. CE-4’s accession can surely be expected to increase the number of products originating in CIS-3 and affected by anti-dumping measures. Not only CE-4 will have to implement measures in force in the EU, but AD procedures can be initiated by other EU producers who export to CE-4 markets and will face competition from CIS producers. Also, in the future, CE-4 – as the EU Member States - will have to adopt common EU measures (if any) against unfair imports (at dumped prices).
5.2. Other safeguard measures
Apart from anti-dumping measures several other types of safeguard measures may be applied, both by CE-4 and the EU. This group includes first of all measures against excessive imports which cause or threaten to cause injury to domestic producers of like products (under Article XIX of GATT 1994 and the WTO Agreement on Safeguards). The EU legislation provides additionally for rules against excessive imports from non-market economy countries that are easier to apply than general safeguard rules for imports from WTO Members.[32] In practice these rules have been applied seldom, however.
In the late 1990s CE-4 have used safeguard measures against some products coming from CIS. Among products affected were: coal, ammonium nitrate, and tractors imported from Russia, refractory-clay and steel plates from Ukraine, tractors from Belarus, steel plates from Kazakhstan, and some other products treated on erga omnes basis.[33]
There is also a special safeguard mechanism of the WTO Agreement on Agriculture for agricultural products noted as a “SSG” (special safeguard). The SSG system permits the imposition of “snap-back” tariffs, which the EU (and all other WTO Members) may invoke either when import prices fall below trigger prices, or when import volumes rise above trigger volumes. The EU has invoked the price-based SSG as from 1995 for a number of products: poultry meat, dried egg yolks, and certain sugar products for the marketing year 1995-1996. In next years the range of products covered by SSG increased including also some vegetables and fruits.[34]
In Poland, for example, the special safeguards for agricultural products have been invoked several times, in 1999 for cut fresh flowers, beef meat, sugar, flour.[35]
The SSG is in force until 2002. The EU is interested in its extension but this requires agreement from other WTO Members. The new WTO round of multilateral negotiations that is to start at the beginning of 2002 should bring answers to these issues. However, even if the SSG is maintained, its practical meaning will not be limited because of very low value and shares of agricultural exports from CIS to CE-4.
A special regime applies to certain iron and steel products covered by the ECSC and EC Treaties imported from three CIS partners (WTO Members are not covered by these rules). In 1997, the EU concluded bilateral agreements renewing certain quantitative restrictions on imports of iron and steel products from the Russian Federation and Ukraine, first established in 1995 on an autonomous basis, and in 1999 the EU concluded a similar type of agreement with Kazakhstan.[36] Some of the products covered by quotas in the EU are nowadays imported to CE-4 without any restrictions. Accession to the EU is likely to affect this situation. It will restrict access to the enlarged EU market for exporters from CIS-3 if EU quotas will simply be extended to cover also CE-4. Alternatively, EU-wide quotas can be increased to accommodate supplies from CIS-3 to CE-4 at levels roughly equal to the actual import levels. In the latter case, CE-4 accession would be neutral for CIS-3 as far as the present level of quantitative restrictions is concerned (though there would still be an adverse impact on future trade flows). A third option is to remove quotas altogether. Earlier removal would be a natural consequence of the accession of countries affected by restrictions to WTO (Russia).
5.3. Export subsidies in agricultural exports from the EU
The CIS, which are net importers of agricultural products, are beneficiaries of export subsidies applied by the EU. Prices of subsidized products tend to go down. For many years the EU has subsidized exports of agricultural products, including cereals, beef, dairy products etc.
Among CE-4, only Hungary applies subsidies to exports of agricultural products on a larger scale. Other candidate countries, mainly because of budgetary problems, maintain exporty subsidies only on few products (e.g. Poland subsidizes exports of sugar and potato starch[37]).
Although export subsidies in all WTO members have been reduced for several years (due to the Uruguay Round Agreement on Agriculture) they will be maintained in the nearest future. So, after joining the EU, CE-4 should be eligible for such subsidies (when prices in the Union will be above the world prices). Thus, CIS consumers will probably benefit from cheap, subsidized agricultural imports. The issue is, however, much more complex and should take into account a number of other elements, such as changes in the demand and in the production of agricultural products in CIS, in world prices, directions of the common agricultural policy reform, results of the newly started WTO negotiations etc.
5.4. Technical Standards
5.4.1. EU rules
Industrial products and foodstuffs placed on the Community market, whether of Community or imported origin, are subject to legislation that obliges them to satisfy certain criteria or to meet certain standards and technical specifications. This legislation is necessary for various reasons, such as safeguarding the safety of workers, protection of the health of consumers, reduction of environmental pollution and rationalization of industrial production. The problem for the EU common market was not that individual countries maintained national regulations on norms and standards, but that these regulations differed widely across the region and that those different measures could be used to protect the national market from products from other Member States.
The present EU framework for product and product-related regulations is based on three main pillars. The fundamental rule under the EC Treaty is the free movement of goods between Member States. Member States may, however, introduce measures, as an exception to this general rule, to protect legitimate public interests (health and safety, environment, public morality and security), provided the measures are not discriminatory and are not a disguised barrier to trade.
The second principle is mutual recognition of Member States legislation that has the same objectives in terms of the level of protection (based on the 1978 “Cassis de Dijon” ruling of the European Court of Justice).[38]
The third principle is harmonization of Member States legislation, when differences are too significant to permit mutual recognition to operate effectively, based on a high level of protection.
New barriers to trade, which result from the adoption of diverging national technical standards and regulations, can be prevented through a procedure laid down by Directive (EC) 98/34 as amended. Member States are obliged to notify draft technical regulations and standards to the Commission and to the other Member Sates. During a standstill period these measures may not be adopted, which leaves the Commission and the other Member States with a possibility to react.
The removal of technical obstacles to trade started in the Community with the harmonization of national regulations and creation of Community laws agreed upon by the Council. This was the so-called “old approach” to different technical requirements in individual EC member States. It provided for product-specific laws that laid down detailed technical requirements to be implemented by member States. These requirements applied in particular to motor vehicles, chemicals, foodstuffs, and pharmaceuticals, i.e. particularly sensitive areas. Technical requirements were very detailed. Such approach was very time-consuming and difficult to be agreed upon, especially after the EEC enlargement in 1986, among twelve Member States.
In May 1985 a “new approach” to technical harmonization and standards was adopted.[39] It is now the most popular way to align national standards. This approach established the following principles:
Legislative harmonization is limited to essential requirements (of a general character) which have to be met by all products placed on the Community market. Specific technical solutions are left to the market (e.g. to voluntary standards or manufacturers’ declarations). It means that the technical specifications of products meeting the essential requirements set out in the directives are laid down in harmonized standards.[40] Application of harmonized or other standards remains voluntary, and the manufacturer may always apply other technical specifications to meet the requirements. However, products manufactured in compliance with harmonized standards benefit from a presumption of conformity with the corresponding essential requirements.
The operation of the new approach requires that the standards offer a guaranteed level of protection with regard to essential requirements established by the directives, and that the national authorities carry out their responsibilities for the protection of safety or other interests covered by the directive.[41]
Such rules apply to a large number of areas. They include among others: low voltage equipment, simple pressure vessels, safety of toys, construction products; electromagnetic compatibility, machinery, personal protective equipment, non-automatic weighting instruments, active implantable medical devices.
New approach directives apply to products placed on the Community market for the first time. They cover new products of Community origin as well as new or used imported products. The person placing the product on the market – the manufacturer or the importer (in the event the manufacturer is not established in the Community and has no authorized representative in the Community) – assumes responsibility for possible threats to health or safety.
The manufacturer must affix the “CE” mark to the product upon compliance with essential requirements, established by the prescribed conformity assessment procedures, without which the product may not be placed on the market. In many cases, the manufacturer’s declaration is sufficient, but in the event of a sizable risk factor, the intervention of a third party (a notified body) is required. Notified bodies are designated by the Member States, and a manufacturer, whether established in the Community or abroad, may also offer the manufacturer the possibility of using quality assurance systems.
In the absence of specific legislation, whether at Community or Member States level, general Product Safety Requirement applies to any consumer product (food or non-food) placed on the market, enforced by the Member States mainly by market surveillance. Other general requirements include protection against misleading advertising and dishonest provisions in contracts with consumers,[42] liability for defective products, including for primary agricultural products,[43] and correct indication of prices information among the Member States in the event of a serious and immediate risk to the health and safety of consumers. A similar system applies to foodstuffs.
Due to all those principles and regulations, free movement of goods on a single European market has been operational since January 1, 1993.
5.4.2. Effects of the adoption of the EU standardization system in CE-4
For several years EU candidate countries have been adjusting her own system of standards, testing and certification to the EU requirements. Under the European Conformity Assessment Agreement of 1997, the candidate countries agreed to introduce an EC-compatible certification system. CE-4 agreed, inter alia, to gradually align its regulations and certification procedures with the EU; to remove from mandatory certification those products which are free from certification in the EU; and to automatically provide national safety certificates to EU products subject to mandatory certification. While the list of products requiring mandatory certification in CE-4 has already been significantly reduced, some delays have occurred in implementing the Agreement.
CE-4 will also have to transpose to its domestic legislation all directives that are mandatory in the EU. Upon the day of accession, most probably all CE-4 products will have to meet EU requirements, i.e. to comply with the EU directives of “old” and “new” approaches to technical requirements.[44] Also products imported to CE-4 (as a part of the single European market) from the third countries will have to comply with those requirements. Certainly, this condition will apply also to goods coming form CIS.
A negative aspect of this change will be that CIS products (like CE-4 products) will have to be adjusted to modified technical requirements that will involve some additional costs and time. However, those negative implications should be modest in practice because most products imported from the CIS region do not fall into area of mandatory certification (as these are mostly raw materials and by-products). In the longer term this situation may change when CIS exports will become more differentiated and will include products covered by EU compulsory technical specifications.
It seems that in a longer term, the present and future adjustments of CIS exports to new technical rules (which will be the same in CE-4 as in the whole Community) should act to the benefit of those exports. The reason is that at present the CIS exporters, when they sell on CE-4 and on EC markets, have to meet two types of technical requirements and related certificates: national CE-4 requirements and the EC requirements. After CE-4’s accession to the EU there will be only one type of such requirements which will make easier selling on the whole huge EC market. In other words, products meeting Czech, Hungarian or Polish rules will automatically fit the EC requirements and thus will be easier sold on the single European market, covering all EU Member States, including CE-4. In this way CIS exporters will enjoy economies of scale.
5.4.3. Other EU requirements
CE-4 will have to adopt not only technical requirements being in force in the EU but also a lot of other rules, including social and environmental protection standards. Such adjustments will probably affect CE-4’s relations with trade partners in third countries in a variety of ways.
Such adjustments will increase competitive pressure on CE-4 producers (more demanding requirements regarding social standards, technologies used etc,) which will result in increase of costs to adjust to those requirements (including increase of labor costs). The effect will be that CE-4 producers will become less competitive in terms of labor costs relative to CIS producers who will not have to adopt such laws. It is a new opportunity for them to improve their price competitiveness. Higher social standards will also make CE-4 less attractive for western investors who may contemplate moving further east to CIS partners having lower labor costs (provided other conditions remain unchanged). Certainly, labor cost advantages usually are not the main factor behind foreign direct investments. However, in some areas they still count.
Similar situation is in the field of many environmental requirements. As long as they refer to products characteristics, they have to be observed by all producers (be it domestic or foreign producers). Many environmental rules relate however to production technologies in order to protect clean air, water, etc. As long as the CIS producers do not have to install new equipment to meet such standards, their products can be cheaper.
Summing up, the EU standards, usually higher than those in CE-4, are not only a challenge but at the same time an opportunity for CIS exporters. At present, while exporting to CE-4 and to the EU, CIS producers have to essentially meet standards of both partners. After the EU enlargement they will face access to one bigger market with the same uniform requirements which should certainly result in increased efficiency of exports and economies of scale in the field of production.
5.5. Export duties and taxes
No export taxes, charges or other fees are levied by CE-4. Exports of goods and services are zero-rated for VAT purposes. Exporters can also claim a tax credit for VAT paid on inputs. However, no rebate of excise duties paid on inputs, such as petroleum products, is available to exporters.
6. The impact of CE-4 accession to the EU on inflows of foreign direct investment to CIS-3
6.1. Theoretical underpinnings
Since the beginning of transition in 1989 flows of foreign direct investement (FDI) to central and eastern Europe have been growing steadily. But some countries have been able to attract much more FDI than other countries. In particular, EU candidate countries have been particlularly successful in this regard: for instance, the cumulative value of all FDI in CE-4 in 2000 has amounted to more than 50% of all FDI that have flown into the whole region. It suggests that prospects of EU accession has been an important factor stimulating inflows of FDI into the candidate countries. Can one expect that their actual accession will further increase FDI inflows? And to what extent these increased inflows may come at the expense of third countries – simply as a result of diversion of FDI flows away from those other countries, including CIS-3?
There is a wide body of international economic literature that offers several theoretical explanations as to why and under which conditions a firm decides to establish its productive presence in another country. At a more general level, the most widely recognised theory of international production (Dunning, 1980, 1993; Dunning and Narula, 1996) - known also as the “OLI” framework theory or the “eclectic paradigm”- explains the evolution of FDI with a number of microeconomic factors and places the whole process in overall economic development context. According to the OLI framework, a multinational company (MNC) will take a decision on making FDI in a foreign country provided that the following three conditions are simultaneously fulfilled:
a) MNC should have certain competitive advantage arising from ownership of a technology or a new product, which would allow it to start production in a foreign target country and successfully compete with local firms, despite additional costs linked to starting the activity in a different (foreign) environment;
b) Making FDI should be considered as a more profitable strategy for MNC than simply exporting goods to the target country, or a sale of the “competitive advantage” (technology, new product) to another company, e.g. through licensing; this means that “internalization” of the advantage in the form of starting production in MNC´s own affiliate in the target country should be the best alternative;
c) The target country has to have its own competitive - locational - advantages that would attract foreign companies (e.g. specific mineral resources, large domestic market, inexpensive manpower, low taxes).
The three conditions refer to three key factors determining an FDI decision – ownership, location and internalization – which explain the acronymous name of the theory (the OLI framework). As these factors are of different nature, both macroeconomic and microeconomic, the theory is also known as the “eclectic” paradigm. If these three conditions are met (or are believed to be met), a decision by a parent company to establish a foreign affiliate would generally be economically justified (in terms of the parent company’s objective function). The third condition referring to the locational advantage of the target country can be further examined in light of three main motives that typically drive FDI to a foreign country. The first possible motive is simply to supply the local market in the target country, substituting fully or partly for previous – or potential - exports. The second possible motive is to take advantage of lower wages, lower taxes or lower other cost items in order to reduce overall production costs and thereby increase efficiency and overall competitiveness. The third possible motive is to acquire special assets, e.g. in form of a commercial brand or a license. Accordingly, it is customary to distinguish FDI that are local market-oriented, cost - or efficiency-oriented, and asset-oriented, respectively[45].
All three categories of FDI have been observed in central and eastern Europe. Local market-orientation is likely to favour larger CEEC or those with higher purchasing power - which means preferences chiefly for Poland, and to a lesser extent for Hungary and the Czech Republic. Cost-oriented (or efficiency-oriented) FDI tend to exploit primarily the advantage of inexpensive and relatively well trained labour force in the region, although the advantage can be offset by other costs items such as underdeveloped infrastructure, higher taxes, or administrative barriers. Cost-oriented FDI come typically at the same time as domestic market-oriented FDI, but they generally require more stable and predictable economic conditions in the host country. The third type of FDI aims at acquisition of a unique type of a resource or asset. Targeting mineral resources has dominated FDI in Russia and Kazakhstan, especially in oil and gas industry, as well as extraction of precious stones and metals. Targeting other assets, in particular those determining strategic competitive advantage, such as a recognised commercial trade mark, an industrial patent or unique technical skills, is characteristic for higher levels of development and larger, more internationally-oriented firms. This type of consideration may be the key motive in TNC strategy to build international production networks. However, strategic asset-oriented FDI seems to be less frequent in the region than other two types of FDI.
EU accession may be regarded in this context primarily as a factor further strengthening both the local market motive and the low production cost motive. In the first case, an FDI project located in a candidate country will, after EU accession, automatically enjoy free access to the entire enlarged EU market, thus adding this extra market potential to the local market potential. In the second case, non-wage costs are likely to come down in new member countries because of reduction of transaction costs, harmonisation of laws, norms and standards, and because of reduced macroeconomic and sovereign risk. These two factors can be expected to attract additional FDI, beyond and above those that are already present in central and eastern Europe.
Addressing more specific issues of FDI inflows to developing and transition economies, the recent literature emphasises the importance of the overall business environment, including tax and other fiscal and quasi-fiscal burdens, trade integration, labour costs and the form of privatisation process (see e.g. Lansbury et al., 1996; Holland and Pain, 1998; Garibaldi et al., 1999; Lankes and Venables, 1996; Bevan and Estrin, 2001). Some other authors also stress the significance of the size of the country’s economy in explaining the level and directions of FDI flows, as well as the importance of purely firm-specific factors in FDI decisions (Svetlicic and Bellak, 2000). The studies indicate that in the transition countries, as in other developing economies, political and economic factors, privatisation policies, and some transition-specific factors, such as the prospects of EU accession, have been the principal determinants of FDI inflows. The policy-dependent and institutional factors are responsible for large variations in FDI stocks and flows between different transition economies that have similar levels of per capita income. As FDI flows complement, and grow in parallel with, export and import flows, they will also be generally higher for countries with more intensive trade links.
In a more formal setting, FDI can be modelled as being determined primarily by expected profitability, which depends on demand (level of GDP) and cost (wages, taxes, transaction costs) factors and on a risk factor, which itself may be measured by the host country investment and credit rating. The host country credit rating is in turn determined by a number of economic and non-economic variables, such as the share of the private sector in the economy, the degree of international openness, the budget balance, the quality of public institutions, scope of corruption, level of political stability, etc. As suggested by some studies (see e.g. Baldwin, Francois and Portes, 1997; Grabbe and Hughes, 1998; Beven and Estrin, 2001), announcements concerning EU membership are found not to influence a country’s credit rating, but to affect FDI directly. The political decisions about timetables on EU accession and advancing on the road to full membership can increase FDI levels for reasons explained earlier, thereby improving overall economic performance of the candidate countries. This process has the potential to reinforce itself, thus establishing a virtuous circle and further improving the country’s investment ratings and further stimulating FDI inflows. By contrast, non-EU candidate countries can be expected to receive less FDI not only because they have no prospect of becoming EU member but also because that they are generally less advanced in transition and their economic performance is relatively poor, so their investment ratings are also low.
In light of the above, a possible diversion of FDI away from CIS-3 into CE-4 cannot be entirely excluded but it is not likely to play any significant role. The key explanation is the enormous difference in the level of risk associated with FDI in the two groups of countries. International credit ratings published periodically by international investment agencies can be used to gauge the difference in the risk levels between individual countries. The ratings for CIS-3 are much below those of CE-4; in fact the two groups of countries belong to quite different categories. Table 6 shows Standard & Poor’s foreign currency sovereign debt ratings. The best out of CIS-3 – Russia – has now the rating which is three notches below the least attractive of CE-4 – Slovakia, Ukraine is five notches below, and Belarus is sub-standard. The differences in local currency debt ratings are even bigger. Clearly, CIS-3 and CE-4 do not seem to be substitutes – even imperfect – as locations for potential FDI. This hypothesis is confirmed by the present profile of FDI in CIS-3 – they are generally much smaller than in CE-4 and concentrated chiefly in mining and energy sectors, with very few ventures in manufacturing. This specific pattern has not been affected by much lower production costs, especially wages, observed in CIS-3, or by a large and untapped domestic market in Russia. This suggests that the key obstacles for more FDI inflows into CIS-3 are still high economic and political risks that depend on domestic factors, such as slow progress in market reforms, imperfect rule of law, inefficient public administration, corruption and high transaction costs.
Table 6: Standard & Poor’s long term sovereign debt risk ratings for CE-4 and CIS-3, 2001 and 2002.
|Country |Local currency |Local currency |Foreign currency |Foreign currency |
| |May 2001 |November 2002 |May 2001 |November 2002 |
|CE-4 | | | | |
|Czech Republic |AA- |A+ |A- |A- |
|Hungary |A+ |A |A- |A |
|Poland |A+ |A |BBB+ |BBB+ |
|Slovakia |BBB+ |A- |BB+ |BBB- |
|CIS-3 | | | | |
|Russia |B- |BB- |B- |BB- |
|Ukraine |SD |B |SD |B |
|Belarus |SD |SD |SD |SD |
Note: SD – substandard
Source: Credit Weekly, Standard & Poor’s, various issues.
6.2. FDI inflows to CE-4 and CIS-3: some statistical observations
In a broader macroeconomic context, the levels of inward FDI flows depend on the overall development level of the home country and the target country relative to the rest of the world, and on a number of policy variables that jointly determine the level of expected profitability adjusted for risk. According to the OLI framework the relationship takes the form of the investment development path model (IDP), which suggests that inward FDI tend to increase in parallel with the level of economic development.[46] Initially, these are relatively simple ventures exploiting mineral resources for export purposes and ventures addressing some segments of domestic consumer market. As per capita income increases, the rate of growth of inward FDI first increases and then gradually decreases, and at the same time the structure of FDI shifts towards more sophisticated products, services and operations that are part of international production networks.
Available empirical data seem to broadly support the theoretical predictions of the IDP model. Figure 1 shows the relationship between the level of development, measured by the level of gross national income per capita, and the level of FDI inflows per capita, for the panel of 87 countries for which the relevant data are available[47]. It can clearly be observed that the average annual level of OFDI per capita tends to be higher in countries with higher levels of GNI per capita. The trend line demonstrates that an increase of per capita income by USD 1000 can be expected to attract additional FDI inflows of USD 68 per capita. The value of R(square) coefficient (0.40), though statistically significant, suggests that apart from the per capita income some other country-specific and firm-specific factors are important in explaining FDI flows. These other factors include domestic policy and institutional variables that are important in determining the level of risk associated with FDI in individual countries.
Figure 2 shows the relationship between the level of per capita income and the level of FDI inflows per capita, but only for a smaller group of countries with income per capita not exceeding USD 10,000. The relationship is broadly similar, though the scope coefficient is lower which suggests that the FDI effect of an increase of per capita income in poorer countries is only half of that obtained for the entire sample of countries (USD 30 per each thousand of US dollars of additional per capita income). Again, individual cases may deviate
from the trend line due to other country-specific factors.
Table 7: Real and potential per capita FDI inflows to CE-4 and CIS-3
|Country |Income/capita, in USD, a) |Real FDI inflows per |Hypothetical FDI inflows, |Hypothetical FDI inflows, |
| | |capita, in USD, b) |in USD (trend equation |in USD (trend equation 2),|
| | | |1), c) |d) |
|CE-4 | | | | |
|Czech Republic |4920 |474.9 |279.9 |159.3 |
|Hungary |4740 |197.5 |269.1 |153.8 |
|Poland |4200 |203.9 |232.0 |137.5 |
|Slovakia |3700 |189.0 |197.7 |122.3 |
|CIS-3 | | | | |
|Russia |1660 |19.9 |57.8 |60.5 |
|Ukraine |700 |12.1 |-8.1 |31.4 |
|Belarus |1270 |13.9, e) |31.0 |48.7 |
a) GDP in USD, 2000; b) annual average inflow, 1998-2000; c) y = -56.1 + 68.6 x; d) y = 10.2 + 30.3 x; e) annual average of 1997-1999.
Source: UNCTAD (2001), EBRD (2001); own calculations.
The two trend equations have been applied to calculate hypothetical levels of FDI inflows to CE-4 and CIS-3, as alternative functions of their respective per capita income levels. The results are presented in Table 7. It can be seen that real FDI inflows in CIS-3 are generally much lower that the hypothetical levels (except for Ukraine under the first equation). By contrast, real FDI inflows to CE-4 seem to broadly correspond to hypothetical
levels obtained from equation 1, and are much larger than the hypothetical levels obtained from equation 2.
It is clear that the downward deviations from the trend in CIS-3 are caused by other – non-per capita income – factors that have worked in favour of FDI in CE-4, but against FDI in CIS-3. As FDI inflows to CIS-3 are much below the trend level, this “deficit” of FDI cannot be explained by factors that are specific to CE-4 – that is, prospects of EU accession – but rather by factors specific to CIS-3, such as high risks. It follows that EU accession of CE-4 can only have a marginal effect, if at all, on FDI inflows to CIS-3, and that the main constraints on FDI inflows in CIS-3 are to be looked for in domestic policies and institutional environment.
6.3. Impact on CIS-3 of increased FDI inflows to CE-4
Whatever negative direct effects of a possible diversion of FDI away from CIS-3 into CE-4 after EU enlargement, they will likely be more than offset by positive indirect effects arising from dynamic spillovers from increased FDI and enhanced competition in CE-4. As suggested by the experience of earlier enlargements (Spain, Portugal, Ireland), FDI inflows into the new member countries can easily more than double few years after their accession (Zimny, 1999). Assuming that FDI in CE-4 will increase at a similar pace, annual FDI inflows to CE-4 would jump from USD 16 billion in 2000 to some 32 billion after accession. A combined effect of this additional FDI on imports from CIS-3 would amount to USD 160-200 million per annum (assuming 7% share in imports and marginal propensity to imports equal 0.2).
More generally, CIS-3 can be expected to gain more from dynamic benefits that are likely to accrue to new member countries. According to a numbers of studies, the dynamic benefits from integration for new members are estimated at between 6-8% (Brown, Deardorf, Djankov and Stern, 2000; Breuss, 2000), and up to 18-20% of GDP (Baldwin, Francois and Portes, 1997; Orłowski, 2001) in 2008-2014. Even taking more conservative figures into account, the annual gains in terms of GDP for CE-4 would be around USD 20 billion. The positive spillover effects of these additional incomes for CIS-3 can be substantial.
7. Other implications of EU membership for relations with CIS-3
Another implication of CE-4 accession to the EU should be improvement of CE-4 transport infrastructure (co-financed from the EU budget under ISPA,[48] European Investment Bank credits, and in the future probably under regular Structural Funds and Cohesion Fund). This can be of particular importance for transit trade between CIS and EU going through CE-4 territories. At present, poor condition of transport infrastructure in CE-4, in particular roads and border crossings in Poland, is an important obstacle for further development of trade between CIS-3 and the EU. Certainly, better infrastructure can be expected to reduce transport and transaction costs, and will encourage more bilateral trade.
Eastern borders of Poland, Hungary and Slovakia will become the eastern border of the whole EU. Various new implications will appear. One – directly linked to trade opportunities – may be increased movement of CIS exports through CE-4 at the expense of reduced trade through Romania and other Balkan countries. Main reason for that will be a lower number of border points to be crossed (assuming that Romania later joins the EU), especially in road transport. With improved quality of roads in CE-4 (especially Poland) this should speed up circulation of goods and reduce transport costs.
Border controls will become not only faster but probably also more thorough. This may reduce the present scope of illegal transactions in both partners. Some will shift to official trade, some will have to disappear. Even if some short-term costs may be involved in tightened border controls, in the long run considerable benefits can be expected to be obtained from better tax collection and less crime.
Fears are expressed in Russia, Belarus and Ukraine with regard to strict immigration controls and visa regulations that will have to be introduced in CE-4 for citizens of third countries, including CIS-3 (at present CE-4 allow practically a visa free access for CIS citizens, with a voucher or an invitation letter from CE-4). The EU insists on applying visas to CIS citizens because of fears of illegal migration and spreading of organized crime, in particular from CIS and increasingly also from some Asian countries. Strict border controls remain a high priority for the EU, and CE-4 will have to adopt the EU rules without exceptions[49].
The new “Schengen” regime may initially constrain the existing economic ties and limit tourism and personal contacts. These costs, however, may be limited if the new visa regime will be will not be unduly restrictive, that is, it will be accompanied by measures that will allow for expedite administrative procedures for granting visas, especially for business people, and at reasonable costs. The example of Finland is telling in this context, as the country has always maintained strict border controls and a rigorous visa regime without actually hampering economic cooperation with Russia.
8. Conclusions
a) CE-4’s accession to the EU will result in a decrease in the level of import tariff protection on majority of non-agricultural products in Hungary and Poland, while in the Czech Republic and Slovakia the level of protection will remain broadly unchanged. The tariff reductions for imports from CIS-3 will result from twofold developments: reduction of MFN tariffs and inclusion of CIS-3 into GSP.
b) In most cases the impact of these tariff reductions on CIS-3 exports to CE-4 will, however, be small in short term because of the generally low level of the present tariff protection and because of the specific commodity pattern of those exports. CIS-3 partners export to CE-4 mainly gas, oil and other raw materials. Import tariffs in CE-4 on those commodities amount already now to 0% or, if different from zero, they are very low. There are very few quantitative restrictions or any other additional import barriers on those goods in CE-4. The same situation exists in the EU. In other words, demand for such products will depend mainly on economic activity, and not on market access conditions.
c) Any general assessment of the implications of CE-4’s accession to the EU on CIS-3 exports should, however, be carefully interpreted. While the vast majority of imported products won’t face any market access improvement (as they are already now imported at zero-rate duty), individual products – among those that are not yet exported to CE-4 - may benefit much.
d) The trade creation effect of the tariff changes after adopting of the EU common external tariff by CE-4 is negligible. It has been estimated to be marginally positive for mineral imports (USD 18 million, or 0.17% of total mineral imports), and marginally negative for industrial imports (USD 20 million, or 0.92% of total industrial imports). These results are heavily effected by expected losses on imports of one single product – aluminium. If aluminium is excluded, the overall effect for industrial products becomes marginally positive (USD 14 million, or 0.66% of total industrial imports).
e) In the longer period, the positive effects may be substantially larger. A reduction of tariffs on a number of products where tariffs are now relatively high and imports low should encourage creation of additional trade flows. Certainly, the scope of such changes will depend not only on tariff reductions but also on other factors. Demand changes in CE-4 will be affected rather by domestic factors, including indirect effects of accession (access to larger market, the impact of structural transfers on GDP growth), and of improved export offer of CIS (better of quality of goods, more favourable credit terms, after-sale services etc), rather than by tariff changes.
f) Tariff changes on agricultural products will go in divergent directions: some of them will go up, while some – will go down. It is difficult to assess the overall effect for agricultural imports from CIS-3 to CE-4, mostly because of technical problems involved in estimating the tariff equivalent of various specific duties and quotas. Under some simplifying assumptions, the overall trade creation effect has been estimated to be positive (USD 13 million, or 2.33% of total agricultural imports).
g) FDI inflows to CE-4 are likely to increase after accession but it is unlikely that this will happen at the expense of FDI inflows to CIS-3. FDI in CIS-3 are low relative to their economic potential and can be increased only when domestic constraints – such as high economic and political risks caused by slow progress of reforms, weak market and state institutions and inefficient infrastructure - are removed.
h) In longer term, the accession CE-4 to the EU will strengthen their position as a market for CIS products. A number of new opportunities for mutual trade will arise. Some risks and barriers will also arise but in a longer term they should be outweighed by new opportunities. CE-4 will become a part of a huge single European market offering foreign suppliers economies of scale, easier access to consumers (lower tariffs in case of majority of goods), increased demand (due to faster and sustained economic growth), reduced costs of meeting technical requirements (at present, both in CE-4 and in the EU), lower tariffs etc.
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Annex I:
Possible changes of MFN tariffs on main products imported from CIS-3 to CE-4 after EU accession
1. Imports to the Czech Republic[50]
Table A.1.1. Aggregate imports to the Czech Republic from CIS-3, 2001, (‘000 USD)
|Description |CN chapters |Imports from Russian |Imports from Ukraine |Imports from Belarus |
| | |Federation | | |
|Total imports |CN(1-97) |2 000 007 |256 904 |35 348 |
|Imports of agricultural products |CN(1-24) |2 492 |2 553 |499 |
|Imports of mineral products |CN(25-27) |1 658 704 |163 803 |216 |
|Imports of industrial products |CN(28-97) |338 811 |90 548 |34 633 |
Table A.1.2. Ten major agricultural products imported to the Czech Republic from Russia. Import values and rates of duties in the EU and in the Czech Republic
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of agricultural |(in %) |
| | |2001 |Russia |products from | |
| | | | |Russia | |
| | |(USD thous.)| |cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|140420 |Cotton linters |572 |0,03 |0,03 |22,95 |
| | |(USD thous.)| |cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|230630 |Oil cake and other solid residues of |538 |0,21 |0,21 |21,07 |
| |sunflower seeds | | | | |
| | |(USD thous.)| |cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|040610 |Fresh (unripened or uncured) cheese |341 |0,96 |0,96 |68,34 |
| | |(USD thous.)| |Cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|271121 |Petroleum gases, in gaseous state |882 906 |44,15 |44,15 |53,23 |
| | |(USD thous.)| |cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|760110 |Aluminium, not alloyed |63 351 |3,17 |3,17 |18,70 |
| | |(USD thous.)| |Cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|260111 |Iron ores and concentrates, |68 858 |26,80 |26,80 |42,04 |
| |non-agglomerated | | | | |
| | |(USD thous.)| |cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|720851 |Flat-rolled products of iron or non-alloy |20 466 |7,97 |7,97 |22,60 |
| |steel, other than in coils (exceeding 10 | | | | |
| |mm) | | | | |
| | |(USD thous.)| |cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|540210 |High tenacity yarn of nylon or other |5 263 |14,89 |14,89 |15,20 |
| |polyamides | | | | |
| | |(USD thous.)| |Cum. | |cum. |UE |CZ |
| | | |(%) |(%) |MFN |GSP | |
|270300 |Peat (incl. |115 |0,33 |0,33 |
| |peat litter) | | | |
|Total imports |(CN 1-97) |2 369 515 |295 215 |100 105 |
|Imports of agricultural products |(CN 1-24) |5 036 |11 346 |821 |
|Imports of mineral products |(CN 25-27) |2 018 740 |61 042 |64 673 |
|Imports of industrial products |(CN 28-97) |345 539 |222 827 |34 611 |
Source: Data provided by Hungarian authorities
Table A.2.2. Ten major agricultural products imported to Hungary from Russia. Import values and rates of duties in the EU and in Hungary
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of agricultural |(in %) |
| | |2001 |Russia |products from | |
| | | | |Russia | |
| | |(USD thous.)| |cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|040610 |Fresh (unripened or uncured) cheese |4 395 |1.85 |1.85 |87.27 |
| | |(USD thous.)| |cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|230630 |Oil-cake and other solid residues of |6 775 |2.29 |2.29 |59.71 |
| |sunflower seeds | | | | |
| | |(USD thous.)| |cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|040610 |Fresh (unripened or uncured) cheese |810 |0.81 |0.81 |98.66 |
| | |(USD thous.)| |cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|760110 |Unwrought aluminium, not alloyed |132 084 |5.57 |5.57 |38.23 |
| | |(USD thous.)| |Cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|271121 |Natural gas |1 054 557 |44.51 |44.51 |52.24 |
| | |(USD thous.)| |cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|760110 |Aluminium, non-alloyed |77 354 |26.20 |26.2 |34.71 |
| | |(USD thous.)| |Cum. | |Cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|271600 |Electrical energy |36 729 |12.44 |12.44 |60.33 |
| | |(USD thous.)| |cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|870190 |Track-laying tractors, agricultural |19 509 |19.49 |19.49 |56.37 |
| | |(USD thous.)| |Cum. | |cum. |UE |HU |
| | | |(%) |(%) |MFN |GSP | |
|271000 |Petroleum oils and |63 790 |63.82 |63.82 |
| |oils obtained from | | | |
| |bituminous minerals,| | | |
| |other than crude | | | |
|Total imports |CN 01-97 |4 619 448 |475 374 |153 682 |
|Imports of agricultural products |CN 01-24 |61 626 |21 722 |7 608 |
|Imports of mineral products |CN 25-27 |4 114 342 |261 414 |26 356 |
|Imports of industrial products |CN 28-97 |443 480 |192 238 |119 718 |
Table A.3.2. Ten major agricultural products imported to Poland from Russia. Import values and rates of duties in the EU and in Poland
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of agr. products|(in %) |
| | |2000 |Russia |from Russia | |
| | |(USD thous.)| |cum. | |Cum. |EU |PL |
| | | |(%) |(%) |MFN |GSP | |
|030360110 |Frozen fillets of cod |20 752 |0.45 |0.45 |33.67 |
| | |(USD thous.)| |cum. | |Cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|081040300 |Fruit of the species Vaccinium myrtillus, |3 614 |0.76 |0.76 |16.64 |
| |fresh | | | | |
| | |(tys. USD) | |cum. | |cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|040210190 |Milk and cream. granules or other solid |4 896 |3.19 |3.19 |64.35 |
| |forms. Of a fat content. not exceeding 1.5%| | | | |
| | |(USD thous.)| |cum. | |cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|760110000 |Aluminum not alloyed |83 755 |1.81 |1.81 |18.89 |
| | |(USD thous.)| |Cum. | |cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|270900900 |Petroleum oils. crude |3 189 139 |69.04 |69.04 |77.51 |77.51 |0 |0* |0 |
|271121000 |Natural gas |597 706 |12.94 |81.98 |14.53 |92.04 |0.7 |0* |0 |
|271112970 |Propane. other |69 365 |1.50 |83.48 |1.69 |93.73 |0.7. |0* |3 |
|260112000 |Iron ores and concentrates, agglomerated |37 897 |0.82 |84.30 |0.92 |94.65 |0 |0 |0 |
|271000970 |Other lubricating oils |34 835 |0.75 |85.05 |0.85 |95.50 |3.7 |3.7 |15 |
|260111000 |Iron ores and concentrates, |34 208 |0.74 |85.79 |0.83 |96.33 |0 |0 |0 |
| |non-agglomerated | | | | | | | | |
|271113970 |Other butanes |31 380 |0.68 |86.47 |0.76 |97.09 |0.7 |0.7 |3 |
|270112900 |Bituminous coal |23 325 |0.50 |86.97 |0.57 |97.66 |0 |0 |3 |
|251020000 |Natural calcium phosphates, ground |19 186 |0.42 |87.39 |0.47 |98.13 |0 |0 |0 |
|271112940 |Propane of purity exceeding 90% but not |13 783 |0.30 |87.69 |0.33 |98.46 |0.7 |0.7 |3 |
| |less than 99% | | | | | | | | |
* subject to graduation mechanism (i.e. loss of entitlement to the GSP advantages when beneficiaries are relatively well developed (according to a special formula) or exports to the Community are relatively high (detailed conditions are specified in the Council Regulation No. 2820/980).
Table A.3.7. Ten major mineral products imported to Poland from Ukraine. Import values and rates of duties in the EU and in Poland
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of mineral |(in %) |
| | |2000 |Ukraine |products from | |
| | | | |Ukraine | |
| | |(USD thous.)| |cum. | |cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|260111000 |Iron ores and concentrates. |86 296 |18.15 |18.15 |33.01 |
| |non-agglomerated | | | | |
| | |(USD thous.)| |cum. | |cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|350110500 |Casein for industrial use |15 370 |3.24 |3.24 |8.00 |
| | |(thous. USD)| |cum. | |cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|310420500 |Potassium chloride |51 908 |33.78 |33.78 |43.36 |
| | |(USD thous.)| |cum. | |cum. |UE |PL |
| | | |(%) |(%) |MFN |GSP | |
|271112970 |Propane, other |6 621 |4.31 |4.31 |
|Total imports |CN 01-97 |2 180 611 |194 142 |26 843 |
|Imports of agricultural products |CN 01-24 |621 |9 608 |1 |
|Imports of mineral products |CN 25-27 |1 929 268 |88 921 |4 936 |
|Imports of industrial products |CN 28-97 |250 722 |95 613 |21 906 |
Table A.4.2: Ten major agricultural products imported to Slovakia from Russia. Import values and rates of duties in the EU and in Slovakia
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of agricultural |(in %) |
| | |2001 |Russia |products from | |
| | | | |Russia | |
| | |(USD thous.)| |cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|21069092 |Food preparations, nes, other than |141 |0.01 |0.01 |22.71 |
| |proteins, cheese fondue, alcoholic | | | | |
| |preparations and sugar syrups | | | | |
| | |(USD thous.)| |Cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|10030090 |Barley |4 879 |2.51 |2.51 |50.78 |
| | |(USD thous.)| |cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|21061020 |Edible protein concentrates, no fat and low|1.1 |0.00 |0.00 |100.00 |
| |sugar | | | | |
| | |(USD thous.)| |Cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|271121 |Natural gas |940 232 |43.12 |43.12 |48.74 |48.74 |0 |0 |0 |
|270900 |Petroleum oils and oils obtained from |862 416 |39.55 |82.67 |44.70 |93.44 |0 |0 |0 |
| |bituminous minerals, crude | | | | | | | | |
|270119 |Other coal (CECA) |60 222 |2.76 |85.43 |3.12 |96.56 |0 |0 |0 |
|260112 |Iron ores and concentrates, agglomerated |32 746 |1.50 |86.93 |1.70 |98.26 |0 |0 |0 |
|260111 |Iron ores and concentrates, |30 657 |1.41 |88.34 |1.59 |99.85 |0 |0 |0 |
| |non-agglomerated | | | | | | | | |
|271112 |Propane |787 |0.04 |88.38 |0.04 |99.89 |8 |8 |0* |
|271113 |Butanes |783 |0.04 |88.42 |0.04 |99.93 |0 |0 |0* |
|271000 |Petroleum oils and oils obtained from |737 |0.04 |88.46 |0.04 |99.97 |0 |0 |4.6-6.4 |
| |bituminous materials, other than crude | | | | | | | | |
|251990 |Natural magnesium carbonate, nes |569 |0.03 |88.49 |0.03 |99.99 |0-1.7 |0-1.7 |3.8 |
|271119 |Other petroleum gases and other gaseous |120 |0.01 |88.50 |0.01 |100.00 |0 |0 |1.2 |
| |hydrocarbons, liquefied | | | | | | | | |
*) Preferential rate applies to imports not exceeding USD 2 million.
Table A.4.6: Ten major industrial products imported to Slovakia from Russia. Import values and rates of duties in the EU and in Slovakia
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of industrial |(in %) |
| | |2000 |Russia |products from | |
| | | | |Russia | |
| | |(USD thous.)| |cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|840130 |Nuclear reactors, fuel elements |74 274 |3.41 |3.41 |29.62 |
| |non-irradiated, machinery and apparatus for| | | | |
| |isotopic separation | | | | |
| | |(USD thous.)| |Cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|260111 |Iron ores and concentrates, not |41 918 |21.59 |21.59 |47.14 |47.14 |0 |0 |0 |
| |agglomerated | | | | | | | | |
|270119 |Other coal (ESCE) |19 361 |9.97 |31.56 |21.77 |68.91 |0 |0 |0 |
|260112 |Iron ores and concentrates, agglomerated |15 379 |7.92 |39.48 |17.30 |86.21 |0 |0 |0 |
|270400 |Coke and semi-coke |2 863 |1.47 |40.95 |3.22 |89.43 |0 |0 |0 |
|250100 |Salt and pure sodium chloride |2 296 |1.18 |42.13 |2.59 |92.02 |0-2.6 |0-2.6 |0* |
|271112 |Propane |1 789 |0.92 |42.05 |2.01 |94.03 |8 |8 |0* |
|271600 |Electrical energy |1 335 |0.69 |42.74 |1.50 |96.53 |0 |0 |0 |
|250870 |Chamotte or dinas earth |750 |0.39 |43.13 |0.84 |97.37 |0 |0 |0 |
|250621 |Quartzite |683 |0.35 |43.48 |0.77 |98.14 |0 |0 |0 |
|270111 |Anthracite |407 |0.21 |43.69 |0.46 |98.60 |0 |0 |0 |
* Preferential duty rate on imports within a quota of USD 2 mln.
Table A.4.8: Ten major industrial products imported to Slovakia from Ukraine. Import values and rates of duties in the EU and in Slovakia
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of industrial |(in %) |
| | |2000 |Ukraine |products from | |
| | | | |Ukraine | |
| | |(USD thous.)| |cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|760110 |Unwrought aluminium, not alloyed |14 938 |7.69 |7.69 |15.57 |
| | |(USD thous.)| |Cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|271000 |Petroleum oils and oils obtained from |4 922 |18.34 |18.34 |99.72 |99.72 |0 |0 |4.6-6.4 |
| |bituminous materials, other than crude | | | | | | | | |
|271112 |Propane |9 |0.03 |18.37 |0.18 |99.90 |8 |8 |0* |
|250100 |Salt and pure sodium chloride |3 |0.01 |18.38 |0.06 |99.96 |0-2.6 |0-2.6 |0* |
|270300 |Peat |2 |0.01 |18.39 |0.04 |100.00 |0 |0 |0* |
* Preferential duty rate for imports within a quota of USD 2 mln.
Table A.4.10: Ten major industrial products imported to Slovakia from Belarus. Import values and rates of duties in the EU and in Slovakia
|CN code |Description |Value of |Share in total |Share in imports|Rate of duty in 2001 |
| | |imports in |imports from |of industrial |(in %) |
| | |2000 |Belarus |products from | |
| | | | |Belarus | |
| | |(USD thous.)| |cum. | |cum. |UE |SR |
| | | |(%) |(%) |MFN |GSP | |
|731210 |Stranded wire, ropes and cables, |4 603 |17.15 |17.15 |
| |of iron or steel | | | |
|Armenia |PCA |22 Dec. 1996 |1 July 1999 |OJ L 239/99 of 9.09.1999 |
|Azerbaijan |PCA |27 April 1996 |1 July 1999 |OJ L 246/99 of 17.09.1999 |
|Belarus |PCA |6 March 1995 | |Interim Agreement COM(95) 245 final |
| | | | |of 25.03.1995 |
|Georgia |PCA |22 April 1996 |1 July 1999 |OJ L 205/99 of 4.08.1999 |
|Kazakhstan |PCA |23 Jan. 1995 |1 July 1999 |OJ L 196/99 of 28.07.1999 |
|Kyrgyz Rep. |PCA |9 Feb. 1995 |1 July 1999 |OJ L 196/99 of 28.07.1999 |
|Moldova |PCA |28 Nov. 1994 |1 July 1998 |OJ L 181/98 of 24.06.1998 |
|Russian Federation*|PCA |24 June 1994 |1 Dec. 1997 |OJ L 327/97 of 28.11.1997 |
|Tajikistan |Agreement on Trade and | | | |
| |Cooperation of 1989 | | | |
|Turkmenistan | | |23 May 1997 – be-ginning| |
| | | |of negotia-tions on PCA | |
|Ukraine |PCA |14 June 1994 |1 March 1998 |OJ L 49/98 of 19.02.1998 |
|Uzbekistan |PCA |21 June 1996 |1 July 1999 |OJ L 229/99 of 31.08.1999 |
PCA: Partnership and Co-operation Agreement
* - The EU Strategy of the development of relations between the EU and Russia adopted by the EU in 2000, provides for the possibility of creation of free trade area.
Source: EBRD Transition Reports, various issues and Official Journals.
Table II. Applied MFN tariff in the EU in 1999
| |Simple average tariff (%) |Share in total imports (%) |
|Total |6.9 |100 |
|WTO Agriculture |17.3 |8.4 |
|WTO Non-Agriculture |4.5 |84.1 |
|(excluding petroleum) | | |
|Petroleum |2.9 |7.4 |
|HS Chapters 01-24 |17.0 |9.5 |
|Ad valorem |9.6 | |
|Non-ad valorem |29.9 | |
|HS Chapters 25-97 |4.2 |90.5 |
|Ad valorem |4.1 | |
|Non-ad valorem |9.8 | |
Source: Trade Policy Review, op.cit., p. 44.
Table III: Anti-dumping measures on Russian products imposed in the EU (in force on 31 December 2000)
|Product |Measure |Regulation No. |Publication in Official |
| | | |Journal |
|Definite anti-dumping duties |
|Ammonium nitrate |Duties |Council Reg. (EC) No 2022/95, 16.08.1995 as last |L 198, 23.08.1995; |
| | |amended by Council Reg. (EC) No 663/98 | |
| | | |L 93, 26.03.1998 |
|Ferro-silicon |Duties |Council Reg. (EC) No 3359/93, 02.12.1993; as last |L 302, 09.12.1993; |
| | |amended by Council Reg. (EC) No 351/98, 12.02.1998 | |
| | | | |
| | | |L 42, 14.02.1998 |
|Grain-oriented electrical steel |Duties |Commission Dec. No 303/96/ECSC, 19.02.1996 |L 42, 20.02.1996 |
|sheets | | | |
|Hardboard |Duties |Council reg. (EC) No 194/99. 25.01.1999 |L 22; 29.01.1999 |
|Magnesium (unwrought, unalloyed)|Duties |Council Reg. (EC) No 1347/96; 02.07.1996 |L 174; 12.07.1996 |
|Potassium chloride |Duties |Council Reg. (EC) No 969/2000; 08.05.2000 |L 112, 11.05.2000 |
|Seamless steel pipes and tubes |Duties |Council Reg. (EC) No 2320/97; 17.11.1997 as last |L 322, 25.11.1997 |
| | |amended by Council Reg. (EC) No 190/2000; 24.01.2000 | |
| | | |L 23; 28.01.2000 |
|Silicon carbide |Duties |Council Reg. (EC) No 1120/2000, 22.05.2000; |L 125, 26.05.2000 |
|Solutions of urea and ammonium |Duties |Council Reg. (EC) No. 1995/2000, 18.09.2000 | L 238, 22.09.2000 |
|nitrate | | | |
|Urea |Duties |Council Reg. (EC) No 477/95, 16.01.1996 |L 49, 04.03.1995 |
|Zinc(unwrought unalloyed) |Duties |Council Reg. (EC) No 1931/97; 22.09.1997 |L 272; 04.10.1997 |
|Undertakings |
|Grain-oriented electrical steel |Undertakings |Commission Dec. No 303/96/ECSC, 19.02.1996 |L 42, 20.02.1996 |
|sheets | | | |
|Magnesium (unwrought, unalloyed)|Undertakings |Commission Dec. No 96/422/EC; 25.06.1996 |L 174, 12.07.1996 |
|Seamless steel pipes and tubes |Undertakings |Commission Dec. No 2000/70/EC; 22.12.1999 |L 23, 28.01.2000 |
|Silicon carbide |Undertaking |Reg. (EC) No 1100/2000, 22.05.2000 |L 125, 26.05.2000 |
Source: based on: Semi-Annual report under Article 16.4 of the Agreement. European Communities, WTO Document G/ADP/N/72/EEC, 8 March 2001.
Table IV. Safeguard proceedings started in Poland in 1998-2001
|Country |Product |Date of initiation |The result of the proceeding |
|Russia |Hard coal |30 July 1998 |Quota |
| |Ammonium nitrate |27 Sept..1999 |Quota |
| |Agricultural tractors and |14 Dec. 1999 1999 |Proceeding in progress |
| |forestry tractors, wheeled, used | | |
| |Hot-rolled steel plates |22 Oct. 1999 |Proceeding in progress |
|Ukraine |Refractory clays |23 Nov. 1998 |Non-automatic registration |
| |Hot-rolled steel plates |22 Oct. 1999 |Proceeding in progress |
|Belarus |Agricultural tractors and |14 Dec. 1999 |Proceeding in progress |
| |forestry tractors, wheeled, used | | |
|Kazakhstan |Hot-rolled steel plates |22Oct. 1999 |Excluded from proceeding in 2000 |
|Erga omnes (all countries |Potassium nitrate |22 Dec. 2000 |Proceeding in progress |
|exporting to Poland) | | | |
Source: Ewa Kaliszuk, Non-tariff restrictions on Poland’s imports and exports, in: Foreign Economic Policy of Poland, Foreign Trade Research Institute 2001, Warsaw 2000, p.161.
-----------------------
[1] Originally they were developeded by Jacob Viner in his book „The Customs Union Issue” (Viner, 1950).
[2] In other words, the standard concept of the customs union’s effects can be adapted to analyze the effects of Poland’s adjustments to the EU common customs tariff and implications of those adjustments for trade with the third partners (including CIS partners).
[3] A trade-creating customs union also increases the welfare of non-members because some of the increase in its real income (due to its greater specialization in production) spills over into increased imports from the rest of the world.
[4] There are also other static welfare effects resulting from the formation of a customs union. One is the administration savings from the elimination of customs officers, border patrols among the members of a customs union, etc. (D. Salvatore, op.cit. p. 924).
[5] It must be pointed out that even a small country that is not a member of any customs union can overcome the smallness of its domestics market and achieve substantial economies of scale in production by exporting to the rest of the world. Exports inside the customs union are, however, easier than outside the union.
[6] TACIS - Technical Assistance to the Commonwealth of Independent States. The program was adopted by the Council on 15 July 1991 (Council Regulation (EC and EURATOM) No. 2157/91, OJ L 201 of 24 July 1991). The decision provided for ECU 400 millions assistance for CIS in 1991. In next years the support was continued.
[7] In the case of CIS, this clause covers preferences offered by several CIS. For example, the Russian PCA provides that MFN treatment of EU products does not include privileges listed in Annex I and extended by Russia to other CIS partners. Such privileges cover among others: elimination of customs duties on CIS products, of VAT and excise taxes (OJ L 327/97 of 28 November 1997).
[8] During the negotiations on PCA Russia wanted to establish a free trade area, but the EU was reluctant. It was agreed that future talks on a free trade area would start in 1998, but by then Russia had considerably increased protection of domestic market because of the economic crisis of August 1998. As import duties constitute one third of Russia’s budget revenues, it would be difficult also for Russia to seriously envisage introduction of free trade under the circumstances.
[9] The PCAs can, however, have some indirect effects on trade with CE-4. Such effects can be related to provisions on the protection of property and intellectual rights, of competition etc. The final result should be increased interest of CE-4 exporters in selling on the CIS markets.
[10] Trade Policy Review. The European Union. Report by the Secretariat, WT/TPR/S/72 of 14 June 2000, WTO, Geneva, p. 43.
[11] Trade Policy Review, op.cit., p. 43.
[12] Trade Policy Review, op.cit., p. 43-44.
[13] Trade Policy Review, op.cit., p. 43-44.
[14] Council Regulation (EC) No. 2820/98 of 21 December 1998 applying a multiannual scheme of generalised tariff preferences for the period 1 July 1999 to 31 December 2001 (OJ 357/98). The proposal for a new GSP regulation covering the period 1 January 2002 to 31 December 2004 introduces a number of changes, among them modified margins of preferences, new types of incentives for GSP beneficiaries etc.: Proposal for a Council Regulation applying a scheme of generalised tariff preferences for the period 1 January 2002 to 31 December 2004. (COM(2001)293 final, Brussels, 12 June 2001).
[15] The proposal for new Regulation on GSP covering the period 1 January 2002 to 31 December 2004 has reduced the modulation system to two categories of product sensitivity: sensitive and non-sensitive products (see: Proposal for a Council Regulation ... op.cit.).
[16] The graduation applies to countries that have reached a certain level of industrial development determined by a set criteria laid down in the Regulation No 46/1999.
[17] At the beginning of 2001 the following CIS partners were WTO members: Georgia, Kyrgyz Republic, Moldova.
[18] As already mentioned, not all products are covered in the EU by GSP. Thus, in the case of some products, the tariff changes in CE-4 will result only from adjustments to the EU common tariff. In the case of other products, tariff changes will result additionally from the adoption of GSP.
[19] These practical problems make – apart from other reasons – any calculation of trade creation and trade diversion effects very unreliable, especially for agricultural products where such problems exist and where import duties are relatively high.
[20] On „composite agrigoods” of primary and/or processed agricultural products (e.g. milk-and sugar-containing products), the duty has an agricultural component (EA), including for certain forms of sugar (ADS/Z) or flour (AD F/M) established on the basis of a recipe.
[21] Poland. Trade Policy Review, op.cit., p. 44-45.
[22] A lot of agricultural products are covered by preferential tariff quotas. Most of such quotas result from the current and minimum market access commitments under the WTO Agreement on Agriculture. They provide zero or reduced tariff treatment for imports of the specified product up to the limit of a quota, established in value or volume terms, and are available for imports from all WTO Members, unless a specific country allocation is noted in the commitment (e.g. the African, Caribbean and Pacific (ACP) States are granted an allocation within the tariff quotas for bananas and sugar).
[23] Agricultural imports to CE-4 in 2000-2001 accounted for 3.7% of total imports from Ukraine, 2.8% of total imports from Belarus, and for only 0.6% of total imports from Russia.
[24]This formula assumes that Poland is a so-called “small” country (see more: S. Laird, A. Yeats, The UNCTAD Trade Policy Simulation Model, “Discussion Paper” UNCTAD No.19, Geneva 1986).
[25] Russian experts have estimated the possible export increase to Poland resulting from the adoption of EU common tariff at USD 20-27millions (on the basis of 2000 commodity pattern of exports). See:WNIKI. Biuleten Inostrannoj Komierczeskoj Informacji, No. 61, 5 June 2001, p. 2.
[26] As noted earlier, static effects are nowadays not significant, mainly because the level of tariffs generally is not high. Dynamic effects are much more important, but very difficult to calculate.
[27] Trade Policy Review 1995. Report by the European Communities, WTO 1995, p. 40—41.
[28] Trade Policy Review. The European Union. Report by the Secretariat, WT/TPR/S/72, 14 June 2000, p. 54.
[29] Council Regulation (CE) No. 905/98 of 27 April 1998 (OJ L 128/98).
[30] In the first two years of application of the new Regulation only 2 Russian companies have been classified as companies coming from market economy country (COM(2000) 363 final, Brussels, 15.06.2000, p.).
[31] New rules were offered also to Vietnam and Mongolia.
[32] Council Regulation (EC) No. 519/94 OJ L 349/94.
[33] Measures undertaken with reference to Article XIX of GATT 1994 should be applied on non-discriminatory (erga omnes) basis, i.e. to all suppliers of a given product and not only against those countries which are the reason of injury or threat thereof. This provision applies, however, only to WTO Members. Therefore, safeguard measures could be applied to individual CIS members, as for example Russia or Ukraine, which are not WTO Members.
[34] Measures introduced under SSG shall be maintained until the the end of year in which they were imposed, and may only be levied at a level which shall not exceed on third of the level of the ordinary customs duty in effect in the year in which action was taken (Article 5.4 of the Agreement of Agriculture of the Uruguay Round). Their extention requires fullfilment of necessary criteria in the next year.
[35] Decree of the Minister of Economy of 24 May 1999 (dziennik Ustaw no. 50, item 512) and of 21 October 1999 (Dziennik Ustaw No. 88, items 985 and 986).
[36] „97/742/ECSC”, Agreement between the ECSC and Ukraine (OJ L 210/1999), „99/866/ECSC”, cited from: Trade Policy Review, op.cit., p. 55.
[37] Export subsidies were also applied occasionally on pig carcasses in 1999. Poland notified to the WTO direct export subsidies of USD 13.2 million and USD 0.7million on sugar and potato starch, respectively, in 1998 and of USD 8.8 million on sugar in 1997 (TPR, 5 June 2000, p.61). These payments were well below Poland’s committed annual amounts made in the Uruguay Round of USD 41 million and USD 38 million for 1997 and 1998, respectively, on sugar and USD 8.2 million on potato starch in 1998. However, its annual quantity commitments on sugar were met in each of the years 1996, 1997 and 1998 by carrying over unused quantities from 1995. At the end of 1998, Poland has accumulated unused quantities of 26,440 tones.
[38] COM(1999)299. The effect of this case is that products legally manufactured or marketed in one country should in principle move freely throughout the Community, where such products meet equivalent levels of protection to those imposed by the member State of exportation and where they are marketed in the territory of the exporting country. Barriers to trade which result from differences between national legislation may only be accepted in exceptional situations, e.g. for health or consumer protection reasons.
[39] OJ C 136, 4 June 1985.
[40] Three European standards organizations (CENELEC, CEN and ETSI) develop harmonized standards to provide technical solutions to meet the essential requirements of the directives. These organizations draft standards in a process of consultation with national committees (representing all 15 Member States and affiliated applicants for accession to the EU), which may include manufacturers established therein (ETSI). Once adopted, the national members of the standards organizations are required to transpose European standards into national standards and withdraw any conflicting national standards.
[41] This approach is appropriate only where it is genuinely possible to distinguish between essential requirements and technical specifications. Further, a wide range of products has to be sufficiently homogenous, or a horizontal hazard identifiable, to allow common essential requirements (see more: Guide to the Implementation of Directives on New Approach and Global Approach, European Commission, August 1999).
[42] Council Directive 84/450/EEC.
[43] Council Directive 85/374/EEC.
[44] CE-4 have not required any transitional period in the negotiating area ”free movement of goods”. Negotiations in this area have been closed in 2000-2001.
[45] The asset-oriented motive is sometimes further divided into resource-seeking and strategic asset-seeking. From the analytical viewpoint, however, the difference is small, as in both cases MNC aims at acquisition of a specific asset.
[46] Specifically, the IDP model postulates that countries tend to go through five different stages of development with respect to their propensity to be inward and/or outward investors, and that these stages have different characteristics also with respect of main motivations behind FDI decisions (Dunning and Narula, 1994; UNCTAD, 1995). For an analysis of the IDP model in the context of small countries, see: Svetlicic and Bellak (2000).
[47] FDI figures are taken from various issues of World Investment Report (UNCTAD, 2000, 2001), and gross national income figures for most countries are taken from World Development Report Bank (World Bank, 2001), except for CEEC for which gross domestic product per capita figures are taken from Transition Report 2001 (EBRD, 2001)
[48] Instrument for Structural Pre-accession Assistance, in force since 2000.
[49] After long and difficult negotiations, in November 2002 Russia and the EU signed an agreement on the simplified visa regime for Russian citizent travelling from, and to, the Kaliningrad region. The agreement removes some of the fears and can be seen as a move facilitating trading and business contacts between the Kaliningrad enclave and mainland Russia.
[50] Trade data for the Czech Republic provided the Cech statistical services. Helpful assistance of the Polish trade representative’s office in Prague in obtaining the data is gratefully acknowledged.
[51] Trade data for Hungary provided by the Hungarian statistical services. Helpful assistance from the Hungarian trade representative’s office in Warsaw in obtaining the data is gratefully acknowledged.
[52] Trade data obtained from the Main Statistical Office and Ministry of Economy.
[53] Trade data for Slovakia provided by Slovak statistical services. Helpful assistance from Polish trade representative’s office in Bratislava in obtaining the data is gratefully acknowledged.
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